Three Alternatives to US Taxation

A nation’s US taxation Singapore explained here is an essential element of its government and economy. Taxes are levied at the federal, state and local levels to finance public services and businesses. These levies can be based on a wide variety of factors including property, income, sales and transactions, capital gains, dividends, imports, estates and trusts, business activities and other sources of revenue. Taxes can be imposed on individuals (natural persons), legal entities such as corporations and partnerships, and other types of organizations.

As a result of changes in the way people earn their income and the nature of business activity, federal taxes have shifted over time. In the early 20th century, before the enactment of the income tax, the majority of federal revenues were derived from consumption taxes—tariffs on goods like whiskey and excise taxes on items such as machinery and automobiles.

By the end of the 1920s, taxes had shifted substantially toward individual income taxes. Initially, the taxes were structured to be progressive—that is, households with higher incomes paid a larger percentage of their income in taxes than did households with lower incomes. However, the progressivity of individual income taxes was eroded by the enactment of a multitude of exemptions and deductions.

Today, the federal tax system is a complex amalgam of numerous taxes and credits that are structured in various ways to achieve different objectives. Among these are the goals of encouraging economic growth, reducing deficits and encouraging a fair allocation of the nation’s wealth. The taxes and credits are complicated because of a range of factors including the fact that individuals and businesses must calculate and report their own taxes, the number of different rate schedules that exist, and the existence of a wide array of deductions and exemptions.

The complexity of the current tax system is a major source of frustration for many Americans. In a recent Pew Research Center survey, 53% of US adults indicated that the tax code bothered them a lot or somewhat. Other major complaints cited in the same survey included the belief that wealthy individuals and corporations do not pay their fair share of taxes (61%), and the perception that there are too many laws (38%). This article considers three alternatives to the existing graduated income tax and analyzes them on several dimensions, including their impact on the tax code’s overall fairness, its progressivity versus regressivity, simplicity vs. complexity and their effect on consumer prices. During this discussion, small groups will evaluate the advantages and disadvantages of each of these alternatives to determine which they prefer. Each group will then present its conclusions to the rest of the class, with explanations and evidence supporting their decision.