Question

The major goal of federal income taxation is the collection of revenuw to operatew the federal government. However four other considerations have a major impact on the formulation of our federal tax law. These four factors are: economic, social, equity, and political. Define each of the four factors and provide several examples and related explanations for each of these factors.

Answer 1

The federal government collects taxes from income tax, payroll tax, and corporate tax.

State and local governments receive the major portion of their tax revenue from the property taxes and sales and gross receipts taxes. The tax basket is also made of corporate income tax, individual income tax, motor vehicle license tax.

There are both efficiency and equity arguments which suggests that it is quite better to have different tax jurisdictions on the basis of different tax bases. This logic is based on the argument that the federal government has better efficiency in collecting taxes from income as it is quite difficult for the individuals to hide the income by shifting it to across the national borders in comparison to state borders.

The equity argument is based on the fact that the redistribution of funds can be done efficiency by the Fed government from high income to low-income states.