Category: taxes

Debra Sherman’s article Trade Groups Identifies Medical Device Makers Passing on Federal Tax provides the report that manufacturers of medical devices have resorted to imposing federal tax on hospital medical devices, patients, and taxpayers. The US Congress imposed a tax of 2.3% on manufacturers of medical devices. This tax is a constituent element of the Affordable Care Act (Sherman, 2013, Para.1). The aim of taxing sales for organizations that engage in manufacturing and importation of medical devices is availing about $30billion that is required for providing health care insurance cover to the Americans over the next one decade. This plan implies that the main concern of the US government is to ensure that even the people who cannot afford healthcare insurance can access it through cost-sharing strategies. However, manufacturing organizations have set certain profit margins, which are necessary for them to conduct business normally.

The policy for taxing all manufacturers of medical devices whenever they make sales beyond $5 million became a law at the dawn of 2013. The law requires importers of medical devices worth $5 or more to pay a tax that is equal in amount to the US-based manufacturers of such devices. The government insists that organizations should not pass on this cost to hospitals, which would then pass the expenses to patients. However, every indication makes it clear that many organizations have no option other than passing the cost to the hospitals if they have to maintain their current number of employees. For instance, Sherman (2013, Para. 6) reports that Invacare “expects the impact of the tax to be less than $1.5 million since it intends to pass the cost on to the market.” From an economic perspective, such a decision is reasonable.

Increased taxation results in increased costs. Organizations must recover these costs through higher pricing of their commodities. If higher pricing is illegal in the context of the new taxation policy for all organizations and importers of medical devices, it implies that they need to look for alternative ways of recovering the costs. For instance, medical device manufacturing organizations may opt to lay off some employees. The wages and salaries of layoffs will go into financing the 2.3 % taxation policy. While this alternative sounds satisfactorily important for the organizations, they must achieve their productivity levels with a lower number of employees.

The overall impact of the taxation policy may amount to overworking of employees and/or deteriorating working conditions. In the US, there are labor laws on minimum wages and working hours per week. Consequently, overworking employees may fail to work efficiently. This situation leaves the only option for the medical device manufacturing organizations to compel people to work at unsafe speeds. This strategy ensures higher production rates at minimal labor costs. The alternative is equally bad for employees as layoffs. This case raises the interrogative of whether the 2.3% taxation policy that targets manufacturing organizations and importers of medical devices is appropriate.

Posing the above question to medical device manufacturing organizations, legislators, legal and economic experts, and hospitals among other stakeholders may attract mixed reactions. Legislators believe that organizations have an obligation to contribute funds towards financing the Affordable Care Act. Hospitals responded positively to this call by voluntarily making their contributions. Healthcare Supply Chain Association backed this effort. It launched a website to help create awareness “of some manufacturers’ efforts to shift costs of the tax directly to hospital, healthcare providers, patients, and taxpayers” (Sherman, 2013, Para.1). Medical device manufacturing and importing organizations may perhaps largely oppose this policy on the grounds it imposes higher costs, which reduce profits.

Organizations manufacturing medical appliances cannot pass the 2.3% taxation cost to the end user of the devices. They have to channel a part of their profits into financing the Affordable Care Act through the taxation policy. This assertion reveals why the policy may not be popular among organizations such as “Allergan Inc, Cerner Corp, Waters Corp, Alere Inc, Invacare Corp, Integra Life science and Staar Surgical Co, Cardica Inc, Iridex Corp, and Misonix Inc” (Sherman, 2013, Para.4). The author identifies these organizations as those cited by Healthcare Supply Chain Association as seeking to shift the taxation policy costs to end users of medical devices.

Some organizations are clear on their take on the taxation policy. Sherman (2013) quotes the supply chain administrator of Beverly Slate Memorial Healthcare System who complains that some manufacturers had already incorporated the 2.3% tax as one of the key items while invoicing her organization. This claim implies that the new taxation law is highly unpopular among the manufacturers of medical devices. They continue to look for ways of passing the costs to hospitals and care provider in general. The unpopularity of the law can receive economic scholars’ backing since it subverts the economic principles for operation of business organizations.

In conclusion, based on the expositions made in the article, it is clear that manufacturers and importers of medical devices are not willing to embrace the 2.3 % taxation policy. This inference suggests unwillingness to support the Affordable Care Act by sacrificing a part of their sales’ earnings. Any compulsion through a legal framework such as the 2.3% tax on manufactured and imported medical devices worth more than $5 million and above will continue creating friction between various stakeholders in the US healthcare sector.

Reference

Sherman, D. (2013). Trade Groups Identifies Medical Device Makers Passing on Federal Tax. Chicago Tribune. Web.

Discussions on climate change have gained traction over the years, with nations including Canada aiming to meet their Paris Agreement goals. Governments are putting in enough efforts towards climate change if the declaration by forty-five countries to cut greenhouse gas emission by 2030 is anything to go by (Resource Works, 2021). In the article “When it comes to the new carbon tax, sustainability is a double-edged sword,” Resource Works examines concerns of the economic sustainability of the environmental public policy implementation in Canada (Resource Works, 2021). Whereas the article points out the financial implication of the Canadian government policy on climate change, it failed to appreciate the general ethical benefits that the world will gain if Canada commits to climate change programs.

Resource works (2021) put emphasis on the tax implication of the Canadian climate change policy and overlooked other benefits that the tax rule brings to the world. The article negates the regulation by indicating that social and economic activities will suffer in the near future if the policy is implemented. The emphasis on the tax rise on carbon emission to cut down the greenhouse gas emission is a manifestation of the researcher’s way of opposing the climate change initiative.

The article outlined key issues in the Canadian climate change activities by examining the socio-economic implications of the regulation. The ethical concerns aboard jobs and income loss due to tax increase helps understand how worldview affects the implementation of public policies. According to Saul Alinsky, “The sixth rule of the ethics of means and ends is that the less important the end be desired, the more one can afford to engage in ethical evaluations of means” (Alinsky, 2010, P. 48).

Based on the rule, the article did not point out how less important climate change is to Canada. In so doing, the report failed to convince the reader whether the Canadian government should abolish the push to climate change at the expense of tax implications. In fact, according to the Bible, in Mark 12:17, Jesus told his disciples to give Caesar what belongs to Caesar. Therefore, if Resource works believe that climate change is good for Canadian and the world, they should have looked at the bigger ethical benefits that will come when more taxes at levied on carbon emission to discourage the activities.

References

Alinsky, S. (2010). Rules for radicals (pp. 48-124). New York: Random House US.

Resource Works (2021). When it comes to the new carbon tax, sustainability is a double-edged sword. Web.

Introduction

Due to globalization which is characterized by advanced technology especially in transportation, coupled with the desire to learn from other countries, it has been realized that the rate of students seeking education in foreign counties has increased.

However, changes and development of internet contributed to the fact that learners are able to obtain desired education certificates by studying in their motherland (Dwyer, 2009). This does not mean that there are no international students. It is worth mentioning that Universities and collages have relied heavily on international students for income as well as resources.

Although there have been serious issues facing international students such as cultural differences and communication or language barriers, there is no such burning question as whether or not these students should pay taxes. There are those that should be exempted from paying taxes regardless of whether these students work or not; on the other hand, there are those who believe that they opt to pay taxes since they enjoy the services and goods of the host countries (Vance & Ahlstedt, 1996).

The title of persuasive essay is ‘international students should be exempted from paying taxes, unless they are working in the host country’. According to Dwyer, 2009, international students refer to those individuals who are seeking education in other countries and they will stay in that country for the period they will be studying.

I believe relieving foreign students from paying taxes will go long way in ensuring that they are not further troubled since they have a whole host of issues to handle such as language barrier and cultural differences. The paper is divided into the following sections, introduction where the thesis statement is brought forth, the main body where the supporting arguments for my case are succinctly covered and lastly the conclusion section where the summary of main points are brought forth. The thesis statement is then re-stated.

Supporting arguments

I believe that exempting those international students who are not working will go an extra mile in ensuring that Universities and collages open doors for more international students.

This is a good concept since it allows to share and learn about other cultures which will help in ensuring that the world’s populations partially or fully understand the various cultures hence they are able to do business successfully in various destinations (Rajapaksa & Dundes, 2003).

Assuming that international students are taxed, there will be higher chances that new and prospecting students will be discouraged from seeking studies overseas. In addition to hindering cross-cultural learning and knowledge sharing, this will compromise the advantages Universities and collages enjoyed such as financial gains (Goodman, 2006).

On the same note, this act will deny majority of international students the opportunity of enjoying the services and high quality education that could not be obtained from their home countries. This will have a serious long-term impact not only on individuals but also on the entire country of students’ origin.

Additionally, when such students are not allowed to learn in foreign countries, they will develop hard feelings about the potential host country. This kind of hostility combined with other causes of ‘perceived injustices’ will make such individuals a security threat in terms of terrorism. If the host countries try to invest in the countries by sending students to study overseas, it will be fully supported in all spheres (legally, politically and economically) and it will enjoy doing business in that country (Ault & Martell, 2007).

Secondly, I hold the view that exempting international students from paying taxes especially those who are not working will ensure that they are relieved from the hustle involved in dealing with tax issues; this will provide them with an ample opportunity to fully concentrate on academics (Vance & Ahlstedt, 1996).

Additionally, having in mind that the majority of international students face serious challenges such as language barrier, cultural differences, changes in climate among others, it would be a plus if the host country has an arrangement where these kind of students are exempted from paying taxes (Goodman, 2006). It will reduce the number of issues they have to worry about, hence, giving them an opportunity to adapt to the new environment quickly and with ease.

Thus the students will be in a better position to concentrate and do well in class. In my thesis statement, I said that there is need to tax those international students who are working. This will discourage international students from seeking job opportunities instead of learning. Additionally, it will encourage students to go back to their countries once they complete their education.

This will ensure that the host countries are not too congested which will put less pressure on existing resources and at the same time allow new students to seek education in foreign countries to get the opportunity (Rajapaksa & Dundes, 2003).

I do believe it is the responsibility of ‘richer’ countries to encourage individuals from developing countries to seek studies and support them. This in the long run will help balance the existing inequality between developed and developing countries. To accomplish this, foreign students should not be taxed.

Another reason to support my thesis statement rests on the idea that if international students are compelled to pay taxes, they will indulge in illegal activities to raise money for the same personal upkeep and entertainment.

In the United States, for instance, those who have engaged in drug trafficking are students who do so with the aim of raising more money to meet their daily need since little money they receive is taxed (Rajapaksa & Dundes, 2003).

To avoid such a scenario, it would be rational to exempt international students from paying taxes. On the same note, being compelled to pay taxes will add frustration to international students. This will drive them to engage in drug abuse such as alcohol, bhang, heroine and cocaine in the pretense that it will help relieve stress.

More importantly, since some of the international students are from third world countries who are sponsored by the government, family members or organizations, it would be unreasonable to tax them, bearing in mind that going overseas is costly.

There are cases where the government of the host country and the one sending students have reached an agreement not to tax the students. Not taxing them will uphold such an agreement leading to a mutual understanding between the two countries (Ault & Martell, 2007).

Conclusion

International students should not pay taxes. I believe that having an arrangement where those who work in the host country should pay taxes while those not working should be exempted; it will be important in encouraging students. International students are those individuals who seek higher education in a foreign country stay there as long as the study continues.

Exempting international students from paying taxes will help encourage more prospecting students to get the same opportunity. At the same time, it will encourage cross-cultural learning, knowledge sharing and ensuring that Universities and collages continue gaining financial benefits associated with the program. I have also argued that exempting international students especially those who are not working will help in ensuring that the students are relieved from the burden of worrying about tax issues.

This will further provide them with an ample opportunity to concentrate on their studies and even complete the program within the stipulated time. Additionally, the exemption will ensure that international students do not get engaged in heinous activities such as drug trafficking and drug abuse. More importantly, when international students are exempted from paying taxes, the relationship created among such students of different origin improves due to mutual respect.

This in the long run will provide a favorable environment for Foreign Direct Investments. However, I think taxing international student who are working will help fight the problem of brainwashing which is rampant in the developing countries as well as easing pressure on the available resources in the host countries.

References

Ault, D. & Martell, K. (2007). The Role of International Exchange Programs to Promote Diversity on College Campuses: A Case Study, Journal of Teaching in International Business 18(2):153-77.

Dwyer, J. (2009). Communication in Business: Strategy and skills. Prentice Hall: New York.

Goodman, A. (2006). Why they Come: Connection, The Journal of the New England Board of Higher Education, 21(2): 15-6.

Rajapaksa, S. & Dundes, L. (2003). It’s a Long Way Home: International Student Adjustment to Living in the United States, Journal of College Student Retention, 4 (1): 15-28.

Vance, D. & Ahlstedt, D. (1996). U.S. Federal Income Tax Guide for International Students and Scholars, NAFSA Association of International Educators.

Introduction

Obesity is becoming increasingly a major issue in the U.S. thereby necessitating a swift intervention by the government to bring the menace within controls. This paper will apply certain microeconomic concepts in conjunction with a cost-benefit system to investigate the impact of fat tax. The concept relevant to this theme involves, the rational and irrational decision-making regarding obesity-related consumption choices.

Challenges of obesity

According to the statistic of the U.S. Department of Health and Human Services (31), adults of age between 20 and 74 the incidence of obesity has increased from 15% to 27% between 1980 and 1999. Moreover, 1999 saw 13% of children aged between 6, and 11 and 14% of teenager indicate a body mass index between 25 and 30. Typically, overweight individuals have increased risk of developing diabetes (Southworth 41).

In the U.S. a rise in the incidence of diabetes signifies a health crisis as well as financial crisis. For instance, in 2000, the federal government invested a total of $117 billion on issues related to obesity. Worth noting, the mortality attributed to obesity is approximately 300,000annualy (U.S. Department of Health and Human Services 5- ).

The above mentioned cost, encompass medical expenditures and decreased productivity and income. Practically, this cost is higher relative to the cost related with tobacco consumption. (Kuchller & Ballenger 17-, qtd in Southworth 42).

This conviction poses a question of how the government should intervene to resolve this crisis. Logically, the federal government, society, and individuals have a role to play in the effort to resolve the trend. The following paragraph will examine one such policy focused on resolving this issue and the role of the government, society, and individuals.

Fat tax policy

Apparently, there is no rigid definition of the named policy. Nevertheless, certain proposals taxing based on food categories involving cookies, snacks, soda, candies and other related staff. No the other hand, some proposals impose taxes on discrete foods considered unhealthy based on the calorie and fat content.

For the purpose of accomplishing the expected impact on obesity, it is practical to determine the foods which increase the risk factors of obesity so that to impose tax on them.

The tax would as well cover the food substitution the consumers may make. In addition, the tax will minimize the probability of companies of reducing production of taxed food commodities while increasing of those that are untaxed.

Furthermore, a broad tax base for all unhealthy food products, ones that have been proven to increase obesity-related health cost, will not be bias on producer.

For instance a candy bar manufacture and soda manufacturers would equally be affected. Increased cost and adjustment in productivity and consumption would impact all the manufacturers of commodities that indirectly contribute to the increase in the national investment in obesity.

Thus, in regard of the relevance of a broad based tax in the mentioned domain, a fat tax can be defined as one that is implemented to all foods beverage commodities that are associated with obesity.

Stakeholders

By gauging the impact a fat tax would have in the sense of the prospect cost and benefits, one should focus on the societal standpoint which entails the federal government and it’s the public have a standing.

This conception is supported by the conviction that residents, instead of taxpayers, suffers the burden of the national cost of obesity or perceive decrease benefits for public accessible products or services. Nevertheless, a large portion of diabetes cost is often covered by taxpayer.

Assuming the entire society has standing, the impact of a fat tax should be approached from the perspective of an individual stakeholder so as to gain knowledge of the form of cost, reimbursements, and shift may transpire.

The prospects for the analysis of the impact of fat tax would encompass consumers, private companies, including those that manufacture products liable for fat tax, insurance organizations, private health insurance organizations and health institutions, medical organ, and the U.S. government.

Because the problems of obesity determine the welfare of the stakeholders, it would be logical to expect such groups to be affected by the tax policy enforced to control obesity. Typically, the manufacturers of those targeted products would campaign forcefully against fat tax policy, while the health representatives and organs would appreciate the usefulness of the tax.

Consumer, on the other hand would take two positions; for and against, depending on their views of its impact on them as persons and as groups as well as based on their comparison of the changes accruing from tax against the status quo.

On the side of the government, there would be increase in revenue which could be used to counter the nationwide obesity-related investments, despite the ideological opinion for and against the fat tax policy. These arguments directs to the inquiry of the political credibility of a fat tax.

Conclusion

Comparison of the estimates of cost against the benefits of fat tax is important to determine whether this policy is realistic. Therefore more research is needed to establish the estimates for the national obesity-related cost, and the benefits in order to settle the uncertainty of fat tax implications.

Works Cited

Southworth, Lisa. The skinny on a fat tax: obesity and microeconomics. Boston, Mass: Cengage, 2003. Print.

U.S. Department of Health and Human Services. National Institutes of Health. Clinical guidelines on the identification, evaluation, and treatment of overweight and obesity in adults. NIH Publication 98-4083. 2007. 29 January, 2011. Web.

Executive Summary

Cigarettes fall among commodities that are classified under the Australian tax system as luxuries. As such, they are charged a levy known as GST (Goods and Services Tax) which normally stands at 10% of the value of the commodity so charged and a further excise tax^[1].

The GST system provides a lot of revenue for the Australian government due to the fact that most of the goods normally consumed in the due course of everyday life have to be charged GST.

However, the government has zero-rated basic necessities such as food items, education, childcare and health care. It is notable that not all food items are GST-free and for one to know what is taxable and what is not, he or she must consult a list of products produced by the Australian Tax Office (ATO) that details the classification of goods for tax purposes. Apparently, only registered businesses get a tax credit for GST and consumers are not entitled to a refund.

For non-residents (international persons) they are eligible for a GST refund when they purchase goods in Australia exceeding the value of $300 dollars payable prior to departure and on presentation of current passport and airline tickets.

Background

The GST is a form of sales tax that is levied on transactions involving goods and services in Australia. It is a value added tax (VAT) and not a general sales tax in the sense that all parties in the supply chain get a refund except the end user who is usually the consumer.

Interestingly, the GST was only introduced in Australia on July 1^st 2000 during the premiership of John Howard. It replaced the cumbersome sales tax system that levied a ‘wholesale tax’ on a whole horde of goods which would also be taxed under state and territorial governments. The tax therefore brought some form of uniformity across the Australian tax system^[2].

Initially, there had been much opposition to the introduction of the GST. The idea for a consumption tax that could be levied across the board was first proposed in 1985 by federal treasurer Paul Keating. However, the proposal was dropped after businesses, welfare groups and the ACTU opposed it due to its association with fringe benefits and capital gains taxes.

Nevertheless, the idea resurfaced in 1991 when the then opposition party Liberal-National Coalition (LNC) used it as a campaign item. The public’s distrust of the proposed GST eventually led to the re-election of Keating as Prime Minister and the surprise loss of what had been termed as the ‘unloseable election’ by the opposition in 1993.

In 1996, John Howard led the LNC to a major victory in the elections after making a pledge to ‘never’ introduce the GST. However, in 1998, he backtracked on the promise and instead proposed that the GST be introduced to replace the wholesale sales tax system. In the elections that year, the LNC lost to Labour by a narrow 4.61 % but won the majority of seats in the lower house.

Howard felt that the win indicated that the public was now comfortable with the GST and thus he turned to the minority parties such as the Democrats to whip up support for its introduction since Labour could not accept the GST and the party lacked a senate majority^[3].

The proposal for the introduction of the GST was marketed along with the promise that all revenues raised through the GST would eventually be distributed across Australian states and territories.

Additionally, there was the promise that state and territorial taxes levied on consumption would be removed gradually and replaced with GST through the Commonwealth Grants Commission. However, the Democrats were opposed to the package unless it included exemptions on food, offshore tourism packages and books.

After much back and forth, a deal was struck with the Democrats which saw the introduction of these exemptions which included; 8% refund on textbooks for school use, purchases of library books, greater powers extended to the Australian Competition and Consumer Commission (ACCC) and increased welfare payouts.

The agreement between the parties led to the passage of the legislation dubbed A New Tax System (Goods and Services Tax) Act 1999 on June 28^th 1999. The Act was assented to on July 8^th 1999 and it acquired full operation on July 1^st 2000.

List of Objectives

This research paper shall look into the following;

• Does the GST system provide exemptions for international persons (non-residents)?
• What is the impact of double taxation agreements on the GST application?
• Do international persons qualify for tax refunds for cigarette purchases?

Research methodology

This research paper mostly relies on secondary data for information. Much of the information used here was acquired from publications by the Australian Tax Office (ATO), tax specialists and other experts on matters concerning the Australian tax system. Most of the material is in the form of online journal articles, publications, magazines, newspapers and tax seminar speeches.

Results/Findings

As earlier stated, the subject of international persons being susceptible to the GST was an issue of consideration in the passing of the A New Tax System (Goods and Services Tax) Act of 1999.

Prior to the introduction of the GST, international persons, who for the purposes of this research refer to non-residents of Australia living temporarily in Australia, were allowed to purchased goods from ‘duty free’ shops as long as they had a current passport and showed evidence that they intended to leave soonest i.e. by presenting airline tickets. The system allowed such purchase on the premise that such goods would be sealed until the person had passed the customs area.

With the introduction of the GST, much seems to have changed when it comes to the handling of international persons. Since tourism is a major foreign exchange earner, the tax regime has had to be lax on the taxation of international persons especially on consumables. Unlike in the previous sales tax system, the GST system allows the tourist or international person to purchase goods “GST free” a month before departure.

The exemption from GST is allowed where the purchase made is for goods worth more than $300 Australian dollars and that the goods have to be carried as hand luggage and presented when making the refund claim at a Tourist Refund Scheme (TRS) counter during the departure.

However, the construction of what makes up an international person for taxation persons is difficult. The GST system has often been criticized for being unclear and difficult to understand^[4].

In most cases, the term non-resident is preferred as defined for income tax purposes. Where the international person in question comes into the country through any other visa except a travel visa, he or she is treated as a resident when it comes to taxation save for a few modifications.

This would mean that GST would be levied on the person as long as he or she is keen to stay in Australia for more than six months. Even where the person intends to leave sooner, the only GST extension available is for one month and it only applies for hand luggage goods worth over $300 dollars^[5].

Additionally, double tax agreements entered into between Australia and other countries seem to be only focused on income tax and customs duty. The implication is that international persons should pay for goods consumed in Australia irrespective of their citizenship or duration of stay.

Consequently, most international persons do not receive a tax refund for purchase of goods levied GST. Ideally, the purpose of taxation is to collect revenue for offering services to Australians. Since international persons would most likely not benefit from these services due to their short stay, it is reasonable that they receive a tax refund for goods purchased that have been charged GST.

Cigarettes fall within the bracket of goods that have to be charged GST. In addition, they are also charged a further excise tax. This would mean that international persons who purchase cigarettes from “non duty-free” shops have paid GST.

Since it is not logical that they would purchase cigarettes worth $300 dollars or even expect that they would produce evidence of cigarettes smoked, it is apparent that international persons do not receive any tax return for cigarettes purchased.

In addition, cigarettes are not a necessity and they have harmful effects on the environment and so it’s my opinion that the government should not make tax refunds for cigarettes purchased by international persons.

Conclusion

It is quite apparent that international persons enjoy certain tax benefits in the name of tourism. However, where they get into the country through any other visa other than a travel visa, the taxation system treats them the same way as ordinary residents save for a few modifications.

While it would be prudent to extend some of these favours to these persons for tourism purposes, there are no benefits that will accrue to the country when cigarettes are allowed to be GST-free to non-citizens. Additionally, there are no tax exemptions available for goods that are charged excise tax.

Bibliography

Australian Tax History. Australian Tax Office. 2009. Web.

Gittins, Ross. “A ‘light on the hill’ for our future tax reformers“. The Age. 2009. Web.

Goods and Services Tax (GST) – 7.1.4 – Risks”. Queensland University of Technology.

James, S., Murphy, K. & Reinhart, M. “Taxpayers beliefs and views: Two new surveys.” Australian Tax Forum 20(2) 2005: 157-188.

Labor says GST has king hit economy.” ABC 7.30 Report. 2006. Web.

Footnotes

1. “Australian Tax History,” Australian Tax Office.
2. Ross Gittins, “A ‘light on the hill’ for our future tax reformers”, The Age.
3. “Labor says GST has king hit economy,” ABC 7.30 Report.
4. “Goods and Services Tax (GST) – 7.1.4 – Risks”, Queensland University of Technology
5. James, S., Murphy, K. & Reinhart, M, “Taxpayers beliefs and views: Two new surveys”, Australian Tax Forum 20(2) 2005: 157-188.

Introduction

Governments get the greatest percentage of their income from taxes paid by tax payers in any given country. Taxation is a policy whereby citizens or residents of a country contribute money for social services to the government through well coordinated guidelines. Different countries have different taxation laws.

Taxation is a way through which resources are distributed from the haves to the have-nots. During campaigns of 2008, Senator John McCain’s promised to reduce taxes as a way of reviving the economy; but the question is how the economy will grow if the government has no money? No one likes paying taxes; however it is an evil that we have to live (Anon, 2009). People, if asked, would opt to pay the lowest taxes ever but surprisingly enough they will demand more services from the government.

The notion that was set that taxes should be reduced is welcomed by many citizens; they are of the opinion that it will have a direct benefit on them since disposable income will increase (Klieth, David & Lawrence, 2008). This is true; however there are dangers that will accompany the move. This paper will discuss how tax cuts can revive an economy.

Tax cuts

Different countries adopt different taxation policies, however tax cut take the same route; it can result from raising the minimum amount that is taxable in an economy, reducing the percentage of taxation or even eliminating the entire amount of taxes. Some countries offer tax credits and remission to areas that they would like to give this percentage. There are some cuts which are meant to cut across the entire economy and some are on a specific industry.

Whichever the method, the end result is a reduced tax payable from the trader, individual or company. Governments play an important role in controlling how their country’s economy fair. In a broader perspective, they use monetary and fiscal policies for contraction or expansion reasons. When regulations are made, they may hurt or benefit the economy in short term and long term. Tax cut is an expansionary fiscal policy adopted with the aim of reviving an economy.

Past history

There has been three times that tax cuts have been implemented by the government to facilitate economic growth, in all the phases there has been success. In 1920’s, there was the Harding/Coolidge cuts, then in 1960’s there was president Kennedy cuts, and the Reagan cuts of the 1980s. All the three cuts have proved to be successful. They have followed the same trends that facilitated revival of economies by ensuring that people are given a reason to invest and spend in their economy. Let’s analyze how they manage to revive the economy;

Increased disposable income

Income tax is tax that is charged on individuals and companies out of the money that they get in a certain period of time. In United States of America taxation laws, individuals use a graduated scale of taxation. This is a case where there is set percentages payable depending on the income that one gets.

It ensures that those people who earn higher pay more taxes. When it comes to taxes, it is a standard percentage, unless a particular company is enjoying a certain benefit. Before the taxable value is reached, there are some allowable and disallowable which are adjusted in the profit.

In cases of a tax cut, then the people will have more funds to use, their disposable income will increase. Disposable income increase means an increased consumption. In the recession period, consumption in the economy leads to an aggregate demand of goods and services.

Spending will induce money in the economy, which in turn will affect the economy positively (Newlyn, 1985). If expenditure is facilitated, then chances of recovery are higher. Businesses on the other hand will have adequate resources for business expenditure (in terms of investments).

In all economies personal consumption expenditures, account for the largest amount of government revenue; thus when facilitated it is likely to lead to a quicker recovery from recession (Hall & Lieberman, 2008).

Local Investments and Foreign Direct Investments

One of the hindrances of foreign investments is high taxation taxes especially if the company is a foreign company. If tax rates are reduced, then investors will be attracted by the favorable tax t-rates and invest in the economy. Investments increase the rate of a country development, there is an increased employment, a larger tax net is created and increased consumer choices. When more companies invest in a particular economy, competition is created and this gives rise to efficient ways of doing business.

Local investors are also to benefit from tax cuts since they will feel attracted to invest in their own economy since the tax they are paying is manageable. The overall will be an economy that can meet its own demands in terms of employment, products and services. Local investors will prefer their country instead of another one which might be offering tax incentives.

Globalization and International Trade

The world is undergoing an era of globalization where different countries are involved in trade among each other. As economies expand and trade with each other with assistance of improved technology, the world is becoming a global village. Economies are joining efforts to develop an economic, political or/and social block as they prepare to play a role in the global environment.

Globalization is a process of integration of regional economies and cultures into a global network of trade. In most cases the term globalization is used in economic terms; however it extends to social aspects of life. When trading, a country with a comparative advantage is likely to dominate the market since it is able to produce more goods at relatively low prices.

When calculating the cost of production, there are fixed cost and variable costs. This will set the price that the commodity will be sold whether in the national or international market. Taxation is a cost that is included in a product. When tax rates are reduced, then the cost of these products are reduced; they can then compete more favorable than the same good from countries which has no tax cuts.

When goods are competitive in international market, it means that there will be more countries willing to trade with the country with tax cuts. This leads to an increase in foreign taxes. China has overtaken Japan to be second largest economy as a result of cheap products found in the economy. The same benefit that China has gotten can accrue to any other country (Brownlee, 1996).

Reduced Government Control of Trade

Government use taxation money to finance its projects; if the finances are reduced, then priority areas will be undertaken first. One of the areas that are likely to suffer is government participation in businesses directly. This is likely to come in terms of privatization as they fetch for money to finance deficit created by reduced taxes or it may be through not involving in trade. When it sells public companies to individuals, then there is a facilitated competition.

Monopolistic control will be reduced and thus efficiency is created in an economy. This will give rise to an improved economy. When the government fails to invest in the economy, it creates room for private investors to invest in the economy. This offers more opportunities for investment; an economy that creates room for investment is likely to improve. When private sector is left alone without much government involvement, then they are likely to be competitive and develop better ways of doing things.

For example, one of the area that a government is expected to assist is in provision of medical services to its population. If this service is not freely available, private practitioners will invest in the area. They will develop better ways of doing business, better medicines brought about by competitiveness.

Savings

In an economy investment is facilitated by the amount of savings that the economy can make, if people can make more saving then there will be an increase in saving. When taxes are reduced, there is an amount that that can be aced for investment purposes. An economy grows when there are investments.

Investments = savings

I = S.

Companies pay a large amount of money as taxes, in United States the rate ranges from 25% to 30%; if this amount is left to the control of the businesses they are likely to boost additional investments and expansions. These expansions create other avenues of taxation and improved living standards.

When people are paying less taxes on the amount of revenue that they are earning, they will be motivated to work harder and in the process the economy improves. Business will be willing to undertake research in virgin areas since they are aware that the benefits will accrue to them in the short and long term (Spencer Heath MacCallum, 2007-09-12).

Increase ethical businesses and corporate social responsibilities

Modern methods of business have necessitated the urge to respect the needs of a customer. This is why companies are involving in corporate social responsibilities and are ensuring that their businesses are conducted ethically. If the government eases the burden of tax, it is a psychological approach that may motivate companies to participate in more corporate responsibilities.

Cost of goods

Taxation is a cost that is added when determining the cost of a product. If taxes are reduced then there will be a reduction in the cost of commodities. Cheap products in an economy mean that there is a more choice and satisfaction to the customers since they can afford these products. The poor in the society will be accommodated since they can afford products in the economy and thus reduces inequality gap. Businesses are also able to sell products at low prices and still earn a higher profit.

Recommendations

The government requires revenue to finance its projects; government projects are meant for the benefit of the public. If there is a reduction in level of taxes, then the government will get a reduced amount of revenue and will limit the amount of projects that it can finance.

The most important thing in a tax cut process is to ensure that there are mechanisms in the economy that can “repay” the amount of taxes lost. These projects involve increasing the tax net. A wider tax net with a low rate of tax will ensure a growing economy where there will be increased revenue without hurting the population.

Conclusion

Taxation is a policy whereby citizens or residents of a country contribute money for social services to the government through a well coordinated taxation policy. Different countries have different taxation laws. Taxation is a way that resources are distributed from those who have to those who don’t. +A tax cut is a measure undertaken by governments to reduce the amount of tax payable from a taxpayer.

It may be general to all members of an economy or it may be specific to a certain industry. Whichever the case it affects an economy. In the 20^th century, there has been three tax cuts in United States of America; Harding/Coolidge cuts, then in 1960’s there was President Kennedy

Cuts, and the Reagan cuts of the 1980s all of which were successful. Their success is brought about by the benefits of tax cuts; they include reduced Cost of goods, increased ethical businesses and corporate social responsibilities, increased savings and investments, Reduced government control of trade, it facilitates Globalization and international trade, it encourages Local Investments and Foreign direct investments, and increased disposable income tax payers.

Reference List

Anon. (2009). Taxation: United States Country Review, 323. Web.

Brownlee, W. (1996). Federal Taxation in America: A Short History. Washington, DC: Woodrow Wilson Center Press.

Klieth, A., David B. and Lawrence B. (2008). The financial crisis and rescue. What went wrong? Why? What lesson can be learnt? Toronto: university of Toronto press.

Newlyn, W. (1985). Fiscal and Monetary Policies and Problems in Developing Countries (Book). Journal of Development Studies, 21(2), 298. Web.

Spencer Heath MacCallum (2007). “The Rule of Law Without the State” Ludwig Von Mises Institute. Web.

Introduction

Taxes levied on property acquired in form of land and buildings are a huge source of revenue for local government in U.S.A. The value to be taxed is resolved by an evaluator according to the market worth of the property. Avoiding tax is taken to be a criminal offence in America and every owner of property is required to pay to the state some money in form of tax in regards to his property.

Property can be taken to be land, immovable property such as buildings or movable properties. The tax imposed on property varies in different countries and jurisdictions and this paper will focus on how property tax works in U.S.A (Karp and Klayman, 2003).

Origin Of Property Tax

According to Galaty and Allaway (2001), property tax dates back during the colonial times at the beginning of the Revolutionary War. During this time, the colonies had come up with different types of taxes which included capitation taxes, levied mostly on slaves and the male adults at a certain fixed rate; property taxes levied on enumerated items and according to their worth; faculty taxes levied on traders and tariffs imposed on imported or exported products.

During the war, there were complains that the taxes imposed were unfair especially property tax which was not taxed as per the value of the property but as per acre basis which favored rich land owners. It was not until the end of the war that the complaints were heard and most states started to levy taxes uniformly. Property tax began being levied on the property itself and not on the occupancy of the property owner (in rem).

Basics of Property Taxation

In order to further understand the topic, it is important to go over the basics of what property tax really entails. Since way back, imposing taxes on properties has been met with a lot of resistance from property owners. The State on the other hand relies heavily on this tax revenue imposed on the property as it serves as a major source of its income to plan their budget. It is the role of the local and state government to collect taxes on property (Sarah, 2009).

In most states in USA, the tax levied on real estate is based on the value of the property and its ownership. The tax is levied on a certain tax rate of the given value of the property.

Individual property tax is imposed in many states where the value of private properties owned inside the borders of the state is assessed on a yearly basis. The personal property in this category includes all objects of value such as vehicles and boat registration fees. Only household goods are exempted from this kind of tax.

Calculating Property Tax

The rate of property tax is calculated on a percentage or permille or millage rate. As earlier mentioned, tax on property in U.S.A is collected by the local government at both the county and municipal level. Rates vary between 0.2% and 4% depending on the state in which the property is situated in. The tax assessment officer, appointed by the local government assesses the property which is categorized into two categories. The value of the property can either be based on its improvement or the Land value itself.

To compute the duty to be levied on the assets, the calculated value is proliferated by the mill rate and then it is divided by a thousand. The tax is paid on an annual basis in most states.

The Advantage Of Property Tax In Funding The State And Local Government Services

Tyler (2000) argues that the use of property tax to fund the local government’s services has been favored by most members of the National Tax Association. This is because of the several strengths that it has been associated with to support the government.

Its main strength is based on the fact that it is one of the oldest tax systems in America. Property tax has been in existence before the Declaration of Independence and the same has continued to play a dominant role in supporting the local government. The historical reliance of this tax was due to the fact that the government did not have an alternative to finance its projects.

This was because that the general sales tax was implemented after the Great Depression onset while the Income taxes introduced a generation after the general tax sales. The government relied heavily on the tax levied on property owners.

The other reason for the government’s reliance on this tax is due to its stability. Being the oldest form of tax, it has provided a stable pillar to the local government as a source of revenue. The property rate tax is fixed according to the state that the property is situated in and therefore cannot be changed.

The government is sure to get money from property owners at a particular fixed time which makes property tax more stable than wage or sales tax. Its stability becomes more significant to the state because of the fact that property value appreciates. The appreciation of the property increases the value of the public tax revenue. Due to its future stability, the government can adjust the level of services to the locals from time to time hence being the most flexible fiscal source of income for the government.

The administration and compliance of property tax is easy and not expensive. Compliance is easy since property owners cannot hide their property from being assessed by the local government making it impossible to evade. Moreover, the property becomes the security incase of default whereby a lien is placed over the property. The lien prevents the property owner from disposing the property and if the tax accrues, then the government can sell the property to recover its tax owed and remit the remainder to the owner (Tyler, 2000).

Property tax has further been referred to as a benefits tax. This is because the revenue raised is used to support the locals and public services that serve the tax payer. The local government therefore place policies that protects the property and those that lead to the growth of the value of the property located in their jurisdictions. The public services serve the tax payer and therefore it has been argued that the tax paid by the property owner reverts back to him as a beneficiary in form of services.

Its visibility is also an advantage especially to the local government as it ensures accountability. Unlike other taxes, property tax is paid at a lump sum and the tax payer is aware of the burden he has annually and how much he pays for it. This enable the tax payer to compare the tax he remits yearly with the services offered by the local government and determine whether the services are worth.

Disadvantage of Property Tax

It is widely known that almost all American citizens are against property tax with most of them arguing that it is oppressive and not justified. In a poll activity held by Advisory Commission on Intergovernmental Relations (ACIR), it emerged that the property tax was the second tax that was disliked by citizens after the federal income tax. Several reasons have been given as to why the public dislike this tax (Cullingworth, 1993).

The tax, being more visible to the tax payer does not auger well with the public. The taxpayer receives a bill from the country each year with a lump sum amount required to be paid. The lump sum to be paid is not a voluntary act by the tax payer but rather an amount imposed on him merely due to his ownership of a property. The irony of visibility of property tax as discussed earlier is that though the tax payer dislikes it, it enhances the accountability of the local government on its spending.

Tax administration is another issue that creates distrust with the tax payers. The value of the property should be assessed as per the market value bearing the same tax burden. The issue that arises here is that some property values have been overstated for purposes of tax collection. The uneven valuations lead to inaccuracy of the exact value.

The other dissatisfaction of property tax is its shift from the commercial estate to the residential estate whereby the owners bear the larger tax burden. Many taxpayers argue that the increased tax burden does not compensate the services given by the council.

Limitations Of Property Tax From Performing Its Role

The displeasure of the public as discussed above has had its effects on the role of the property tax to fund the local government. According to Cullingworth and Caves (2003), during the 1970s and 1980s, there was a property tax revolt that resulted to major limitations on property tax. There has also been a lot of political involvement which has been biased against the tax.

There have been laws imposed for limitation of tax rates. This laws act as a hindrance of imposition of rates over a certain period of time. The laws further set a certain amount of tax, for example in California the rate tax set is one percentage. This hinders the local government from raising the rate when it is necessary to do so.

Some states have also established a limitation on property tax revenue prohibiting the tax revenue from increasing above the set revenue levels. In case of a need to increase the revenue, then two remedies have been proposed by the states.

The first remedy requires that if the revenue exceed the set level, then the tax rates should be reduced or secondly, the assessments of the property should be reduced incase of revenue increase. This condition bears a significant limitation on the local government fiscal autonomy as it hinders its increased spending.

Some states have also imposed limitations on assessed property values hindering the property valuation conducted annually from increasing beyond the set statutory limits. In California State for example, the set assessment valuation is two percentages annually unless the property is transferred.

Research conducted over the past few years indicated a reduction on reliance on property tax nationwide by the local government as its source of funding and has instead relied on other alternatives of tax.

Property Tax Variation

States in Northeast and Midwest have been known to rely more on property tax compared to the local government in the West or South. Some regions like New Jersey are considered to be the state that pays high amount of rate tax raising $16 billion in property taxes alone.

This is a high amount compared to the total revenue collected from the other taxes combined and it accounted for almost 46% of the total collection. New York on the contrary collected a minimal amount from the property tax collecting 59% of all tax revenues compared to New Jersey’s 98%. In Alabama, the state raised a mere 39% from property taxes while the Mississippi state collected 92% of their total revenue from property tax.

These variations have certain consequences in such that the citizens of the states that rely on property tax have more control over the public services of their state and stronger government systems. This acts to their advantage as they are able to control the services given by the local government in their states compared to their counterparts (Platt, 2000).

Conclusion

Though it is evident that there is a lot of resistance from the tax payers over property tax, the government requires a source of income to plan its expenditure and failure to tax the locals will result to decline of public services. The law should however be flexible to allow more participation by the tax payers to run the affairs of the public services.

References

Cullingworth, J.B (1993). The Political Culture of Planning: America Land Use Planning in Comparative Perspective. USA: Routledge

Cullingworth, J.B & Caves, R (2003). Planning in USA: Policies, Issues and Processes. USA: Routledge

Galaty, F & Allaway, W (2001). Modern Real Estate Practice in Ohio. Ohio: Dearborn Real Estate.

Karp, J & Klayman, E (2003). Real Estate Law. U.S.A: CengageBrain

Platt, R (2000). Land Use and Society: Geography, Law and Public Policy. Illinois: Island Press

Sarah, K (2009). Key to Economic Science and Managerial Sciences. Vol 29. USA: The University of Michigan

Tyler, N (2000). Historic Preservation: An Introduction to its History, Principles and Practice. Michigan: WW Norton

Introduction

Lower taxes, also referred to as a tax-cut, is the reduction in taxes levied over individuals and corporations. Lower taxation has varied implications on the economy, both positive and negative. However, the immediate effects of lower taxes are a decrease in the actual income of the government and an increase in the actual income of the ordinary citizens whose taxation rates have been reduced.

The reduction in the government’s income may be lessened depending on the reaction of tax-payers. Depending on the proportion of tax-reductions, lower taxes may provide persons and corporations with motivation investments that may increase economic growth, and in turn increase the total taxable income and hence increase the government’s earnings.

Lower taxes, in most cases, stimulates economic activity especially if it is accompanied by lower government spending. Even though many people associate lower taxes with lower economic activity, it does the exact opposite; tax cuts encourage ordinary citizens to purchase more products and services, stimulating the economy and thus creating more job opportunities (Aron-Dine and Kogan, 2006).

Lower taxes ensure less money goes to the government and more of it stays in the pockets of the ordinary citizens and this has a hugely positive impact on the economy as it results in an active, free economy to boom. Therefore, lower taxes are essential to the well-being, both socially and economically, on the average Canadian citizen.

Discussion

Although critics of tax cuts argue that this action reduces the government’s ability to deliver services to the ordinary citizens, studies have proved otherwise, and indeed stated that lower taxes are more beneficial to the general population. While high taxes increase the government’s ability to provide basic services, lower taxes can have a similar effect, even greater.

However, it depends on the taxpayer’s response in the way they use the additional income and also the government’s response towards a decrease in income, such as reduced spending. The notion of high tax rates is simply ridiculous. When citizens pay less taxes as a proportion of their net pay, this positively impacts the amount of money available for spending.

With increased money in their pockets, ordinary Canadians are able to purchase more products and services leading to a vibrant and free economy. It is vital to note that the money spent by the government is not theirs, it belongs to the taxpayers. Lower taxes ensure that the ordinary citizens choose how to spend their money, leading to a free economy (Larson, 2003).

Lower taxes on the manufacturing, service, and business segments of the economy allows them to spend more money on their enterprises and create more employment opportunities, this ultimately benefits the ordinary Canadian citizens. Besides, an increase in commercial activity avails more revenue to the government as a result of an increase in the amount of taxable income, and allows the government to maintain or even raise its delivery of vital social programs and health care (Halpern, 1997).

An increase in revenue also ensures that the government borrows less money and reduces the government’s debt, easens pressure on currency supply and interest rates, leading to lower interest rates, which is important to the social and economic wee being of every Canadian citizen. Tax cuts are a classic example of the saying “less is more” and any sensible government should always strive to find ways of reducing taxation and its own spending (Singleton and Slivinski, 1999).

Perhaps one of the most effective ways of enhancing innovation is to lower tax rates for both individuals and companies. When more remains in the hands of the privates sector through tax cuts, investors will have more money to support innovation. Since there is a strong link between lower taxes and economic growth, an economy that is increasingly dependent on technological advances, such as Canada’s economy, a tax system that is unfriendly to economic growth must be adjusted (National Bureau of Economic Research,1991).

Drawing from the US economy, which is currently experiencing the slowest growth rate since 1776, it is evident that expansive government programs cannot actually sustain a healthy economic growth rate. An increase in tax rates does more harm to the private sector than the positives created by government intervention.

To restore economic growth, including a healthy rate of innovation, the first step is to lower taxes so that the private sector can finance its own innovation itself (Burman, (2001). Giving the private sector the freedom to fund its own investment activities is the most reasonable solution. Innovation involves high risks and when the government funds innovation activities using taxpayer’s money, every taxpayer bears the loss if the projects fail.

However, private investors can choose their own levels of risks since their own money is on the line, therefore, they have a strong motivation to choose sensibly. In addition, as the economy expands and becomes globalized, the total amount of money required to support innovative technologies will be inexplicably huge and any government investment will be a drop in the ocean.

Innovation helps the ordinary Canadian citizen in numerous ways, such as e-commerce, medical procedures, automotive and aerospace, and in electronics and telecommunications. Therefore, in order to enhance innovation, which ultimately benefits every member of the population, the government must lower tax rates.

The idea of high taxes is simply unacceptable. It is a counterproductive strategy that trickles down to the ordinary taxpayer. High taxes have always been found to discourage businesses from expanding or investing into other sectors of the economy, or discouraging the ordinary Canadian citizen from establishing new business ventures.

When the ordinary citizens retract from establishing new businesses and other established businesses fail to expand their operations, the economy shrinks and the common taxpayer feels the pinch. Economists have often stated tat it is the smaller businesses, and to some degree the rich, that increase the size of the national cake.

Hence, economic growth greatly depends on small businesses and not the government. First, the government does not create any money, rather, they take it from the taxpayers and spend it on various national projects. Besides, the poor creates little money and contribute minimally to the economy, therefore, the middle class, to which most Canadians belong, are left to pay most of taxes.

The rich, who are said to contribute significantly to the economy, pay their taxes on the backs of the middle class who are either employees or buyers of the products from businesses owned by the rich. When taxation rates are high, the rich tend to pass over the additional costs to the middle class. An increase in taxation may cause companies to lay off their staff leading to loss of jobs or production of shoddy products in order to counter the high tax rates.

Therefore, either way, the average Canadian citizen is hit hard by high taxation rates. High taxes also have the effect of discouraging multinational corporations from investing in a country, thus eliminating the advantages that come with these establishments, such as the availability of quality and standardized products, job opportunities, and improvement of basic infrastructure.

Conclusion

Lower tax rates are of great benefit to the ordinary Canadian citizen as discussed above. However, it should be noted that these tax cuts, or lower taxes, do not automatically have positive outcomes to the ordinary citizen. The success of lower tax rates partly depends on the response by the government to lower its spending. While this may be simple on paper, very few governments ever reduce their spending, even in the middle of a recession.

However, with suitable government reactions, lower taxes can result into several benefits for the ordinary taxpayer. First, lower taxes increase the amount of money available to taxpayers for spending and hence encourage ordinary citizens to purchase more products and services, stimulating the economy and thus creating more job opportunities. Besides, lower taxes ensure that the ordinary citizens choose how to spend their money, leading to a free economy.

This increase in commercial activity increases government revenue, and allows it to maintain or even raise its delivery of vital social programs and health care, which are directly accessed by the ordinary citizen. Secondly, lower taxation is important towards encouraging a culture of innovation around the country. Innovation is important in almost all sector of the economy, such as transport, healthcare, commerce, communication, entertainment, among others.

These services are accessed by the ordinary citizen in almost every facet of his/her life. Finally, high taxation rates have several negative implications to the ordinary Canadian taxpayer, for instance, high taxation rates discourage businesses from expanding or investing into other sectors of the economy, ordinary citizens also shy away from establishing new businesses. These repercussions may shrink the economy, leading to more harmful economic implications.

References

Aron-Dine, A., and Kogan, R. (2006). Claim That Tax Cuts “Pay For Themselves” Is Too Good To Be True. Web.

Burman, L. (2001). Treasury’s New Distribution Presentation. Tax Notes 90. 1889–94.

Halpern, P. J. (1997). Financing growth in Canada. Alberta: University of Calgary Press.

Larson, J. S. (2003). Tax cuts: issues and analyses. NY: Nova Science Publishers.

National Bureau of Economic Research. (1991). Tax policy and the economy, Volume 5. Cambridge: The MIT Press.

Singleton, S. and Slivinski, S. (1999). Capital Markets: The Importance of Lower Taxes. Web.

The Arthur Laffer Curve is another tool to explain the effects of tax fairness. The research focuses on the Arthur Laffer Curve. The research touches on the Tax Fairness Proposal. The Laffer Curve is an important technique to determine the optimum tax rates.

Arthur Laffer Curve

Stephen Slavin (125) emphasizes that the government continues to expand its ways and means of maxising resources. Tax collection is one of those excellently managed revenue generating activities.

The Arthur Laffer curve indicates that there exists a minimum of one income tax rate where the tax revenue will be maximized. The Laffer curve is typically represented as a stylized graph that begins at the zero rate and ends at the 100 percent rate. There are also several curves that comply with these boundary limitations. There is little that can be stated without giving out some theories or empirical statistical information.

The disadvantage of the Laffer curve shows that the increase in the tax rates will become too unbearable to the paying individuals and business people. In the same way the tax rate of 100 percent would discourage to the people from working. The people would feel it is useless to work because the government will get every penny of the person’s total wages.

The Laffer curve shows that the tax rate increase will result to a diminishing return both the government and the companies being taxed at burdensome levels. The people will surely decrease their interest to work harder if they are taxet at 85 percent or 90 percent of their total earnings. On the other hand, the government will stand to loss public funds if the government taxes income using a one percent or two percent rate based on the company’s net income.

There are different opinions or biases on the optimum revenue maximizing tax rates. On the government side, a higher tax rate would be favorable because it would increase the government’s tax revenues. On the other side of the coin, the tax papers would prefer a lower tax rate. A lower tax rate would precipitate to higher cash on hand. The companies need the higher cash on hand assets in order to pay for the daily operating expenses of the government.

Fair Tax Proposal

The Fair Tax Proposal is a primary tax proposal that would take the place of all major tax sources imposed by the United States government. The tax sources include federal taxes on personal profits and income from corporate activities. The new tax proposal, Fair

Tax, one solo wide national consumption tax on retail sales will be implemented. The Fair Tax Act (H.R. 25) will be imposed on all goods and services during the time of sale. The proposal calls for payment within every 60 days for all family homes or residents living within the territory of the United States. The new tax is likened to a rebate.

The rebates are allowed on people falling within the poverty level. Many groups have rallied behind the approval of the new proposed tax law, Fair Tax Law. Specifically, Georgia’s Congressman John Linder. The Fair Tax reference had been published in 2005. The Fair Tax Proposal was one of the 2008 United States Presidential elections.

Specifically, the new sales tax pegs a 23 percent tax rate on all payments or received paid for in a grocery store, merchandise store, mall, restaurant, and other places where money or money assets are exchange for non-cash financial assets or creation of new liabilities. The proponents of the tax theorized that the new tax law, Fair Tax Law, will lessen the burden of the tax papers. The proponents feel that new tax law will translate to the adjustment of the federal tax.

As usual the proponents of the current tax law system insists that the government’s cash inflows will be significantly reduced by the implementation of the new tax proposal. In answer, the espousers of the new tax law insists that the new law will result to the increase in the tax base. The wider tax base will ensure a continued supply of taxes similar to the tax collections imposed by the current individual income tax and corporate income tax system.

The Arthur Laffer curve was named after Mr. Arthur Laffer. He popularized the curve during his regular classroom lectures. However, he proudly transfers the credit for his Arthur Laffer curve to the 14^th century American Ibn Khaldun. Ibn Khaldun had explained the Laffer curve during the 14^th century.

Arthur Laffer reiterated that Ibn Khaldun had explained the Arthur Laffer curve, under another name, explained to Muqaddimah and John Maynard Keynes during 1377. With the respect to the concept of the Laffer curve, the democrats believe that the current tax system will lean 45 degrees to the right. The democrats believe the rich of society should be taxed more.

The poor shall be taxed at a lesser amount. Also, it is a known fact that “the theory favored by the Democrats is the Keynesian theory put forward by the British economist John Maynard Keynes in the 1930s and 1940s. Keynes’ theory sought to manage an economy so as to keep it on an even keel and avoiding fluctuations in the business cycle – both the booms with their rising prices and busts (recessions / depressions) with their unemployment”.

The Republicans believe the current system is today? the republicans believe the current tax will lean 45 decrees to the left. The Republicans believe that taxes should be lowered to allowable levels.

Alberto Alesina (960) emphasized that “Different beliefs about the fairness of social competition and what determines income inequality influence the redistributive policy chosen in a society. But the composition of income in equilibrium depends on tax policies.

We show how the interaction between social beliefs and welfare policies may lead to multiple equilibria or multiple steady states. If a society believes that individual effort determines income, and that all have a right to enjoy the fruits of their effort, it will choose low redistribution and low taxes”

Stephan Paul (Paul 599) reiterated “international practice in the administration of tax regimes and the implementation of tax collection. It analyses claims by investors that particular state actions in tax administration and enforcement have violated various treaty rights, including the guarantee of fair and equitable treatment, restrictions on expropriation, and the violation of particular commitments covered by treaty umbrellas clauses.”.

The Ranaoke Article states most of the sections of the Fair Tax

A major provision of the FairTax is that no family should pay tax on its basic needs. This is assured by refunding to all legal families, in advance, the tax on all purchases up to the government-defined poverty level for each particular family. The refund is called a “prebate,” and Goodlatte acknowledges that it gives “a degree of progressiveness” to the plan”.

Benefits espoused by proponents of the Fair Tax proposal

Stephen Slavin (369) reiterated there are two benefits espoused by the Fair Tax Proposal. First, the poor’s tax payments are reduced with the presence of the prebate tax reduction. The tax payments will be less confusing. Second, the article offers lower tax rates over the current tax rates.

Two negatives espoused by critics of the Fair Tax proposal.

There is lack of transparency in the Fair Tax proposal. There are vague sweeping statements. Second, the government will receive lesser tax dollars. The lesser tax dollars reduces the states’ infrastructure and other programs.

Working Fair Tax proposal (for a national sales tax) would work

YES, the fair tax proposal for national sales tax will work excellently. The lower taxes will increase the taxpayers’ take home pay. The tax papers will have more money to invest in new business or buy products from other stores. In turn, the other stores will increase revenues. The other stores will have more money to invest in business investments.

The Taxpayer will have more money to invest in new businesses. The economy will increase because of the increase in the take home pay. This clearly shows that the Fair Tax Proposal will be a very good government gift to alleviate the people from the current economic depression enveloping the United States.

On what point of the Laffer curve, the Fair Tax proposal, if enacted by Congress, would place the tax rate slightly 45 degrees to the left. Similarly, the fair tax proposal will place us on the same upper left said of the Arthur Laffer curve. The taxes will be reduced to allowable levels. This is because the government is doing its best to reduce taxes to allowable levels.

Based on the above discussion, the Arthur Laffer Curve can be used to explain the effects of tax fairness. The Tax Fairness Proposal is grounded on the optimizing tax collection. Indeed, the Laffer Curve is another primary tool to ascertain the optimum tax rates.

Bibliography

Alesina, Alberto. A”Fairness and Redistribution.” The American Economic Review 95.4 (2005): 960-980.

Paul, Stephan. “Comparative Taxation Procedure and Tax Enforcement.” International Investment Law and Comparative Public Law 2010.10 (2010): 599-625.

Abstract

Taxes are inevitable, and since their impacts on our clients, investment, and income are adverse, our company should create awareness on the various vehicles one can use to reduce taxation. The viable tax reduction vehicles include retirement plans such as traditional IRAs and Roth IRAs, financial planning techniques, and long-term investment holding period among others.

Types of Vehicles Our Clients can use to Reduce Taxation

Our clients are certainly subject to different forms of taxation such as income, capital gains, and estate taxes. Taxes have adverse cumulative impacts on our clients’ income and investments such as a reduction of expected returns. Therefore, our company should consider all forms of taxation when creating wealth, land, and financial plans for our customers. Fortunately, several vehicles do exist, that our clients can use to minimize their income, capital gains, and estate taxes as explained herein.

Minimizing income tax

Our clients can minimize their income taxes by opening personal controlled retirement accounts like an IRA; whereby, they can be contributing annually. An Individual Retirement Account (IRA) is a self-directed retirement account comprising of “certificates of deposit, treasury bills, mutual funds, bonds, stocks and other investments for which a holder of the account contracts on his or her own” (Buckner, 2010).

Any income saved in a conventional IRA benefit forms income-tax exemption until when that money is withdrawn. Here, it is pertinent to note that, these monies are usually withdrawn when a taxpayer is in the low-tax bracket. These contributions will reduce one’s present taxable income. The monies put in an IRA are deducted from a worker’s income before it is taxed. It is then allowed to grow tax-free until the worker retires.

IRAs are normally subject to various government regulations and limitations. However, unlike the employer-sponsored retirement arrangements, IRA contributions, although they are kept by an annuity or a trust, are usually under the full control of an individual account holder with regard to withdrawals and selection of investments (Buckner, 2010). Furthermore, small business owners and other self-employed individuals can take part in self-directed and self-sponsored retirement accounts.

Financial planning methods are also effective in reduction of tax impacts for both estate and income taxes (Alesco Advisors, 2008). Prime examples of income tax planning methods that our clients can use include those that comprise of suspending and eliminating potential capital gains in appreciated property, letting one’s wealth accumulate without present income taxation and postponing taxation.

Moreover, they can consider taking returns as capital gains, eliminating or reducing taxes, and transferring the tax burden to others (Hallman & Rosbenbloom, 2003, p.281). Our company should also ensure that our clients are making appropriate use of their income regulation deductions like student loan interest credit.

Minimizing capital gains tax

Capital gain refers to the difference between the buying price of an asset and its selling price. In addition, just like the taxman wishes to cut an income tax from one’s income, s/he also would like to tax your gains from any of your investments. This tax is referred to as capital gains tax. Therefore, our company needs to guide our esteemed customers on vehicles they can use to reduce their capital gains taxes.

In most cases, our clients are bound to encounter capital gains taxation from the sale of their real estates or stock investments. Our customers should understand and appreciate the fact that the U.S taxation system is designed in a way that benefits the long-term investor. In other words, short-term investments are taxed highly than long-term investments. A short-term investment is held for a maximum of one year while a long-term investment is held for more than one year and a maximum of five years.

Our clients can use different vehicles to reduce their capital-gains taxes including retirement plans, use of capital losses in offsetting gains and adapting long-term investment holding periods (Black, 2010). Even though, unforeseen changes and circumstances may make one sell his or her shares earlier than s/he envisaged, our clients should strive to find large companies and hold shares for a longer period (Black, 2010).

Doing so will enable them pay capital gains taxes at the lowest rates possible. Our clients should also consider various types of retirement plans such as 401k, Roth IRAs, 403bs, and traditional IRAs through which their investments are allowed to grow without being subject to capital gains taxation (Black, 2010). As mentioned earlier, these plans do not require you to pay taxes for them until when they are withdrawn, when you will already be a low-tax bracket.

Minimizing estate tax

Estates taxes can be reduced in various ways. For instance, our clients can keep their states at or below the yearly exclusion by giving excess monies to their relatives (Maddoff, et al, 2008, p.539; Quinn, 2005, p.2). They should also consider drawing up the available forms of trusts to help them reduce estate taxes such as bypassing the estate: credit shelter trusts.

Conclusion

Tax efficient financial and investment planning is possible through various available tax reduction vehicles. These vehicles include retirement plans, long-term investment holding periods, and financial planning techniques among others. Our company should educate our esteemed clients on the most effective tax reduction vehicles depending on an individual’s financial and investment needs.

References

Alesco Advisors. (2008). Tax Efficient Investing. Web.

Black, P. (2010). Getting Real About Capital Gains. Financial Planning. Web.

Buckner, G. Minimizing Income Tax on a Roth Conversion. Fox Business. Web.

Hallman, G., & Rosbenbloom, J. (2003). Personal Financial Planning. New Delhi: McGraw-Hill Professional.

Maddoff, R., Tenney, C., Hall, M., & Mingolla, L. (2008). Practical Guide to Estate Planning 2009. New York, NY: CCH.

Quinn, J. (2005). Please give generously: High-net-worth charitable giving can be more than random act of kindness. Web.