Income Tax Accounting Alternative methods of taxation Take a look at the followi
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Question
Income Tax Accounting
Alternative methods of taxation
Take a look at the following methods of taxation:
Progressive tax - , or graduated tax, is a tax that is larger as a percentage of income for those with larger incomes. It is usually applied in reference to income taxes, where people with more income pay a higher percentage of it in taxes. A person who makes $5,000 would pay 10% in taxes, a person making $500,000 would pay 35% in taxes. This is the method that we use in the U.S. now.
Fair Tax - is a national sales tax. It would replace all federal personal income taxes, payroll taxes, corporate taxes, capital gains taxes, self-employment taxes, gift taxes and inheritance taxes with a national retail sales tax and monthly entitlement payment (rebate) to all citizens. This monthly rebate payment would be equal to the average sales tax paid on necessities by similar individuals. This rebate payment is meant to ensure that Americans have effectively no net tax burden for spending on necessities up to a limit equal to the federal poverty level and in so doing making the overall policy effectively progressive in nature. Although the Fair Tax is a proposal for a nationwide federal retail sales tax, the proposal calls for the retail sales tax to be administered by the individual states' existing sales tax administrations rather than a federal agency like the IRS.
Flat tax - also called a proportional tax, is a system that taxes all entities in a class (typically either citizens or corporations) at the same rate (as a proportion of income), as opposed to a graduated, or progressive, scheme. In other words everyone would pay 12% in taxes regardless of their income. Many flat tax proposals, however, have a level below which income is not taxed. In this case the tax remains progressive over all incomes.
Lifetime income tax- is an income tax that would tax a person based on their cumulative lifetime income, rather than their yearly income as is currently done throughout the world. A lifetime income tax is currently just a proposal that has been made by some economists and politicians. An example, those who have earned less than $250,000 over their life time wouldn't have to pay taxes. Those who have made between $250,000 and $500,000 over their lifetime would be taxed at a 14 percent rate. Earners of a cumulative $501,000 to $750,000 would be taxed at a 24 percent rate, and those who had made $1 million over time would be taxed at 27 per cent.
Negative income tax - is a method of tax reform that is popular among economists but has never been fully implemented. This would be a flat tax of, say, 25%, but each taxpayer would also be given $10,000 by the government. Thus a person earning only $4000 per year would pay $1000 in taxes, but overall would receive a net gain of $9,000 from the government. A person making $40,000 would be at the break-even point and would neither pay taxes nor receive any benefits. A person making $1,000,000 per year would pay close to the full 25% tax, as the $10,000 would count little towards relieving the tax burden.
Required: After you have read over the alternatives, post which method that you think is best and why. A paragraph or two will be sufficient but you can do more if you would like.
Explanation / Answer
Progressive Tax System -A Progressive tax is a tax where the tax rate increases as your income increases. The United States currently has a progressive income tax that requires higher income citizens to pay a larger percentage of their income in taxes. Taxpayers are divided into categories based on income levels.
ADVATAGES OF PROGRESSIVE TAX SYSTEM ARE :-
Income Equality - This is one of the biggest advantage that progressive tax advocates promote. A progressive tax system really acts as a tool for redistributing income from the upper class to the lower and middle class. Those individuals who earn more pay more into the federal government. This helps keeps the income gap from growing wider between the rich and the poor.
Social Justice - Some argue that it is morally right that those who can afford to pay more in taxes should do so. Those that have very little income should be helped out by those who can afford to help. A progressive tax allows governments to collect money from those who can afford to pay, and uses it to help create a society that is more happy as a result. Those taxes are used to fund education, medical services, housing assistance, and other welfare programs for those people who really need help. Because so many people need help with these things, society is better off as a whole.
More Government Revenue - A progressive system allows governments to collect more money from higher income earners. This results in more money collected than if everyone paid the same percentage. As a result, the government can provide more programs and services that benefit society.