Tax issues are hotly debated because they affect the disposable income of individuals. From individuals to corporations, everyone views the tax issue based on how it affects them individually, rather than how it affects society at large.
There are three options on the table: lower taxes, increase taxes, or just tax the wealthy. When it comes to lowering taxes, President Barack Obama and former Governor Mitt Romney are both for cutting taxes.
Obama said in a September 2011 speech to Congress, published on the White House website, that the American Jobs Act of 2011 “will provide a tax break for companies who hire new workers, and it will cut payroll taxes in half for every working American and every small business.”
Obama has called for tax reform that will eliminate special tax breaks for large companies and high-income households, while Romney has stated that he has no interest in increasing taxes, according to the ProCon.org website.
Romney defines his vision of taxes on his website, stating that if elected, he would “make [a] permanent, across-the-board 20 percent cut in [the] marginal tax rate” for the individual taxpayer and lower the corporate tax rate by 25 percent.
A marginal tax rate is a rate that increases for each additional dollar earned, thus increasing taxes when income rises.
“To repair the nation’s tax code, marginal rates must be brought down to stimulate entrepreneurship, job creation, and investment, while still raising the revenue needed to fund a smaller, smarter, simpler government. The principle of fairness must be preserved in federal tax and spending policy,” according to Romney’s tax plan.
Considering Fairness in Taxation Equation
In 2005, William W. Beach, director at the Heritage Foundation, testified before the U.S. House Committee on Ways and Means.
Addressing fairness in the taxation equation, Beach stated, “If you lived in this simple tax world, then every change to the nation’s tax law would have to pass the test: does the change treat equals equally, does it re-enforce vertical proportionality of our tax system, and does the change disturb the peaceful and lawful work of taxpayers toward their economic and social goals.”
The problem with fairness is that it is subjective and depends on the interpretation of the individual. However, fairness for taxpayers has a universal application and means that everyone should pay a proportional portion of one’s earnings.
A 2008 report by the Smith Institute, an independent think tank, suggests that to bring fairness into a system as complex as the tax system is rather difficult because there are so many “competing voices and interests.”
A May article by the Budget Backgrounder, published on the California Budget Project website, states that for a tax system to be considered fair, everyone should contribute as much as their total income will allow. This requires for a tax system to be balanced and consider the needs of all social classes.
“While everyone believes a tax system ought to be fair, there is disagreement as to what constitutes a fair or equitable tax system,” the Backgrounder article states.
Highlighting 2012 Tax System
“Taxable income equals the taxpayer’s total gross income less certain exclusions, exemptions, and deductions,” according to a publication by the U.S. Congress Joint Committee on Taxation.
America’s federal tax system consists of four parts: individual and corporate taxes, wage-related taxes, estate and gift taxes, and excise taxes. Certain taxes change during inflationary times, such as the annual gift tax exclusion and standard deductions. Some taxes are legislated for a limited time, which could be extended, such as the temporary Bush tax cuts, enacted in 2001 and 2003.
The Internal Revenue Service provides a long list of the latest corrections and changes to existing tax laws and regulations on its website, with the latest update posted on Oct. 3.
“There are many important tax changes taking effect in 2012, as well as some that took effect late last year. … They are the result of tax legislation enacted in prior years, or are triggered by effective dates in regs [regulations], rulings and other guidance, or will occur by default in 2012 absent Congressional action,” according to an article on the Tax Law and Business Organization Strategy website.
Reviewing Taxation System for Pitfalls
Taxation was a problem during many of America’s administrations. Former President John F. Kennedy stated during a 1962 speech at the Economic Club of New York, “Our true choice is not between tax reduction, on the one hand, and the avoidance of large Federal deficits on the other.
“So long as our national security needs keep rising, an economy hampered by restrictive tax rates will never produce enough revenue to balance our budget just as it will never produce enough jobs or enough profits. Deficits are not caused by wild-eyed spenders but by slow economic growth and periodic recessions,” he said.
According to an August article by the Manhattan Institute for Policy Research, tax cuts will allow the economy to grow because companies will be able to expand operations, hire more individuals, and pay higher salaries.
Higher tax rates for corporations will affect a corporation’s profit, but they are ineffective when it comes to reallocating wealth from the rich to the poor and the middle class.
On the other hand, increasing taxes would harm those who are unemployed and the economy at large, including those high income earners, but only “until these people’s top-notch accountants are able to redirect their investments away from the most efficient, effective uses of their money and into sleepier investments,” the Manhattan Institute article advises.
Research has shown that although U.S. taxes are 10 to 20 percent lower when compared with other developed nations, those who are in the upper 10 percent income level pay 45 percent of U.S. annual taxes.
“America’s well-off bear a larger share of the tax burden than do the rich in Belgium (25 percent), Germany (31 percent), France (28 percent), and Sweden (27 percent),” according to the Manhattan Institute.
Changing Existing U.S. Tax System
“The current system is needlessly complex, costly, intrusive, and unfair,” a respondent to a 2011 income tax rate article on the fivecentnickel.com website said.
An Oct. 4 article on the Wall Street Insights & Indictments website recommends changing the tax system to a flat or flat and progressive tax and eliminating all the regulations and complexities.
For example, Wall Street Insights suggests that employees who earn less than $20,000 should be taxed at a 5 percent rate on their gross earnings. The tax rate would grow progressively to 17 percent for anyone earning more than $1 million. Corporations should be taxed at 20 percent after expenses are deducted.
The Wall Street Insights article states, “There’s a reason the tax code is as thick as it is; all those rules and regulations are there to be manipulated. The more rules we have, the more loopholes there are to be created. That’s the game. That’s why ’the strong seem to get more, while the weak ones slave.'”
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