Tax Reforms

Implementing “flat tax” on Income Rate
One tax reform issue that requires addressing is the amount of revenue that needs to be raised by the federal tax system. When there is a disproportion between revenue and spending, debts and federal deficits will increase and reach unsustainable limits. Policy makers need to assess tax policies and come up with ways of alleviating fiscal pressures. Implement a flat tax on income at a rate of 18% for all Americans. Having a flat tax for all Americans will ensure that all citizens are taxed equally and there is no bias. However, a rate of 18% is too high for the citizens taking into account the citizens have different incomes. Implementing this policy will not be beneficial to the government, as it would benefit high-income earners only.

The working class in America pays too much in taxes compared to cooperation’s and millionaires. Most big and profitable corporations pay little on taxes as compared to the middle class citizens. If corporations and the rich pay their fair share, the nation will afford to cut taxes for most of its middle and common citizens. This can also be boosted by cutting on wasteful spending on weapons, military and war. On the contrary, taxing more on high-income earners will result to the government having more money to waste. It also acts as a deterrent for business and individuals to make money. This might lead to a reduction in investment by investors. In the past, high taxation slowed down the economy and resulted in stagnation. Cutting taxes on businesses promoted the revenue. However, increasing taxes led to a reduction in business spending and investments as they tried to cut their tax expenditure resulting to a decrease in revenue for the government.

Implementing Democratic Party’s Reform
There is an unbalanced proportion of Individual wealth in the US. Aggressive steps needs to be taken for a restoration of fair income distribution. The middle class and the poor pay a lot in terms of federal tax which is due to the unfairness of state taxes. System wide tax reform should be implemented to simplify the tax system. A tax policy should be implemented to eliminate loopholes. Democrats hold the idea that taxes should be increased for the upper class and reduced for the middle class. The tax code and system needs an overhaul. The United States needs a code that creates wealth for people and rewards work and not a code, which generates wealth for those who have it. 200000 dollars should be set at the income level where Americans should be taxed more heavily. This will pave way for cutting taxes for the rest of the citizens. Increasing taxes for wealthy Americans will lead to a 98% cut in taxes where most families will be able to meet their daily economic challenges.

GPO Blueprint Tax Reform Proposal
A proposal by the house GOP blueprint proposed that the corporate income tax should be replaced with a Destination Based Cash Flow Tax (DBCFT). This would help the cooperate income tax and the US worldwide tax system eliminate the distortions it caused. The worldwide system will be replaced with a territorial tax system where companies will be taxed based on their locations of profits and not according to their corporate residence. Companies in the US that earn profits overseas would not be taxed again on their profits when they are brought back to the United States. This tax system would also allow a free flow of capital back to the US by eliminating the lock out effect. This would encourage companies to expand and invest operations throughout the world.

Changing Tax Rates
The plan is to cut taxes at all income levels, but the taxpayers earning high incomes will receive the biggest cuts. The average tax bill will then be cut by 1810 dollars, which would increase the income by 2.5% after tax. The top 1% taxpayers would then benefit by 3/4 of the tax cuts while highest taxpayers would see a decrease in 16.9% tax cut after tax income. The middle class households will receive an estimated 0.5% tax cut after tax income while the poorest American would see a downfall in their tax cut 0.4% after tax income. The plan would see a reduction of 33% by the top individual tax income rate, 20% by the corporate, and 25% for partnership and sole proprietorship. This would reduce the child tax credit and standard deductions.

A cash flow consumption tax would replace the corporate income tax, which would apply for all businesses whereby interests in business would not be deductible and investments would be immediately deducted. This would result in a border adjustable cash flow tax with exclusion of exports receipts and imports purchased would not be deducted. This marginal tax rate cuts would reduce tax rates on new investments, incentives on US investments would be increased, and tax distortions would be reduced on allocation of capital. However, interest rates would increase in the event of increasing government borrowing and lead to a crowd out on private investment. This would offset the positive effects of the plans on private investment. In order to counteract the ramification of the tax cuts on the deficit the federal spending needs to be reduced.

VAT Implementation
National consumption tax (VAT). This is a levy on the difference between the purchase of goods and its sales. Generally, the tax is calculated on a business according to its sales, a credit for taxes that is paid on its purchase is subtracted and the difference is forwarded to the government. The incomes of multinational corporations that are resident in the United States should also be taxed. Discretionary and mandatory spending should also be reduced which will lead to a reduction in deficits and debts. Lowering federal spending on healthcare and reducing revenues below baseline amounts would offset deficit reduction. This would lead to an increase in domestic investment, national saving and the capital stock would be increased.

Source by Jeremiah Otieno Odhiambo

Diana McCalpin is an accountant who manages a Certified Public Accounting Practice in Laurel, Maryland which performs audit, accounting and tax services to customers. She loves to share information with clients to help them grow their businesses and be profitable.

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