Reforming the Tax Code
In an effort to ensure that individuals and corporations are fairly taxed and the national deficit is reduced, many governments are reforming their tax code. While some governments are implementing regimes that involve higher taxes, others are taking the opposite path and are cutting taxes in hopes of spurring the economy and encouraging more investment. Nevertheless, the overall purpose of such reform often involves a combination of both higher and lower rates in order to equalize the burden on different taxpayers, as well as to decrease income inequality across the population.
The United States has a long history of tinkering with its own tax code, though solutions are often difficult to find as the US has a complex system of taxation that is relatively complex to reform. At a high level, the US has personal income tax, corporate income tax, payroll tax, capital gains tax, and estate tax (aka “death tax”). While all of the taxes are collected at the federal level, the US does offer some state level income tax.
One of the newest Republican proposals is to lower the corporate tax rate to 20% (from the current 35%), and to eliminate certain tax expenditures such as the corporate alternative minimum tax. This proposal has gained much attention over the past year and many are arguing that lower corporate taxes will incentivize businesses to invest and create jobs, while others argue that lowering the corporate tax rate actually shifts the burden to individuals and could increase the national deficit.
In the past year, several products have emerged aimed to make the tax filing process simpler, eliminating the need for accountants and lawyers. These products have been well received among households, especially those with lower incomes who cannot afford a tax preparer. The US is also continuing to expand its earned income tax credit, which helps low-income taxpayers reduce their tax bills and helps reduce income inequality across the nation.
Despite all of the debate over tax reform, one thing is for certain: the US and other countries must always be prepared for the unexpected. The global financial crisis of 2008 and ensuing recession were proof that any nation must be prepared for sudden and large economic downturns. As such, governments must focus on not only reducing taxes, but also on ensuring that the tax code allows for economic growth and stability.
A certain level of tax is always necessary to ensure that public goods and services such as education, health care, and public safety are funded. Thus, governments must always be mindful to ensure that their tax structure is both efficient and fair. To this end, governments have to continually be on the lookout for instances of tax avoidance and evasion to ensure that citizens are paying the correct amount of taxes.
In sum, reforming the tax code is always a tricky and complex endeavor, but one nonetheless necessary to ensure that governments have the necessary funds to pay for public goods while also providing citizens with a fair and balanced tax system. Efforts such as cutting or raising taxes are typically necessary in order to balance and adjust the taxation regime. However, it is always important to ensure that such measures do not lessen the positive impact of taxes and do not leave citizens with an uneven burden.
