Question

In: Economics

1. What do you believe would be the best choice for a tax system in the...

1. What do you believe would be the best choice for a tax system in the United States? Do you think things should stay as they are? Why? or should we revamp the tax system?

2. Which tax systems or approaches do you recommend? Why?

3. What are the potential problems with the choice you made?

Solutions

Expert Solution

1.

At present, the tax system in the USA (specifically income tax for individual and corporate) is progressive in nature. It is the tax system where income tax rate increases with the increased level of income. It is the best tax system for the USA, but it should get some amendments. The first amendment should be to put lower tax rates for the lower income range and higher tax rates for the higher income range. The second amendment should be to bigger size of income level to be free from paying any tax. It will benefit the poor people and lower income level people.

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2.

Progressive tax system is the system, that is recommended, because it charges lower tax rates to those who have lower income and it charges higher tax rates to the higher income people. It causes more disposable income to people who earn less, while not affecting significantly to rich people in their spending even if they pay higher tax rates.

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3.

Potential problem is to discourage people who take the risk, work hard and earn higher income. These people feel that government is not doing justice to them and they feel discouraged. It also increases tendency to conceal income and pay lower tax rates. Besides, it also makes rich people to demand exclusive facilities as they pay more taxes and its their income that is used for delivering public goods to the poor people. So, it creates conflict between rich people and the government.


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