Question

COMPARE AND CONTRAST THE TYPES OF TAXES USED BY THE US GOVERNMENT. THEN OUTLINE YOUR SOLUTION TO THE FOLLOWING ISSUES; BUDGET DEFICIT, TAX REFORM AND ENTITLEMENT FUNDING

Answer 1

1. Income taxes

Income taxes can be charged at the federal, state and local levels. At the federal level, the amount paid depends on a number of factors, including income and marital status. Lundeen noted the U.S. has a progressive tax system, consisting of seven tax brackets. He added, "for each additional dollar in a new bracket, you pay that bracket's tax rate." There are also a number of credits. For one, the Earned Income Tax Credit (EITC) gives a tax credit to low and moderate earners.

State income tax structures vary considerably. Some states, such as Florida, do not levy an income tax at all. A few states use a single income tax rate, while many states apply different tax rates depending on income.

2. Sales taxes

Sales taxes are taxes on goods and services purchased. These are usually calculated as a percentage of the price paid. Sales taxes vary by state, and even by municipality. In some states, there are no sales taxes at either the state or local level. Other states and local authorities can charge a hefty amount. In Tennessee, for example, consumers can pay as much as 9.44% in sales taxes when combining state and local taxes, according to the Tax Foundation. In 12 states, sales taxes are higher than 8%. Sales taxes are often considered to be regressive, meaning lower-income individuals and households spend a greater proportion of their earnings to pay the tax, compared to higher income residents.

3. Excise taxes

Excise taxes are similar to broad sales taxes, except they are charged on specific goods. States typically tax certain purchases, including gas, cigarettes, beer and liquor. Excise taxes are frequently levied on so-called "sin products," and often are intended not only to help raise money, but also to deter unhealthy behaviors. The federal government also collects such taxes, including 18.4 cents per gallon on gasoline and 24.4 cents per gallon on diesel fuel, as well as a 10% charge for tanning services. Excise taxes are often combined with sales taxes on a single purchase. According to Lundeen, in many cases a sales tax is paid on top of an excise tax.

4. Payroll taxes

Both employees and employers have to pay the Social Security tax, one of two payroll taxes. For the Social Security tax, employees pay 6.2% of their wages, and employers match that for a total contribution of 12.4%. In 2013, the maximum earnings subject to the tax were $117,000. In 2011 and 2012, the amount employees had to contribute briefly declined to 4.2% of wages, as part of a payroll tax holiday designed to encourage people to spend more and boost the U.S. economy.

5. Property taxes

Property taxes are usually imposed to fund local services. According to the Tax Foundation's Lundeen, these taxes are based on the property's market value, and are most often levied on real estate, but can also apply to other property, such as cars. In many instances, these taxes are deductible. However, according to the IRS, property taxes on real estate are only deductible if they are used to promote the "general public welfare," but not if they are used "for local benefits and improvements that increase the value of the property." Many homeowners also qualify for a mortgage interest deduction.

6. Estate taxes

The IRS defines an estate tax as "a tax on your right to transfer property at your death." The estate tax is controversial, as it is seen by some as a penalty for dying. Cash, securities, insurance, real estate, and business interests are among the items considered part of an estate. However, for individuals, only estates exceeding $5.34 million are taxed by the federal government. Most Americans, therefore, are exempt from paying the federal estate tax. The highest estate tax rate charged at the federal level is 40%.

7. Gift taxes

The gift tax is similar to the estate tax, in that it is a tax on transferring wealth. One important difference is that gift taxes involve two living people, Lundeen added. The federal government also has a far lower exemption level for the gift tax than it does for the estate tax. All gifts over $14,000 are taxable, with the tax to be paid by the recipient. The highest gift tax rate is 40% of the taxable gift amount. This tax applies not only to cash, but also to gifts like company shares or cars. Last year, Minnesota became the second state to implement its own gift tax, following Connecticut.

Countries can counter budget deficits by promoting economic growth through fiscal policies, such as reducing government spending and increasing taxes. For example, one strategy is to reduce regulations and lower corporate taxes to improve business confidence and increase Treasury inflows from taxes. A nation can print additional currency to cover payments on debts issuing securities, such as Treasury bills and bonds. While this provides a mechanism to make payments, it does carry the risk of devaluing the nation’s currency, which can lead to hyperinflation.

Taxes should raise the revenue to fund necessary government operations in ways that cause the least possible economic damage. Accordingly, Congress and President Obama should reform the existing tax code and drop their current plans to increase taxes on high-income earners, small businesses, investors, and other job creators. For good reason, no school of economic thought advocates raising taxes during a recession or in its immediate aftermath. Raising taxes now would be reckless and irresponsible. Instead, Congress should focus on tax reforms that would grow jobs and the economy.

Entitlement Programs also include Social Security, Medicare and Unemployment insurance.   Social Security provides retirement and disability benefits, Medicare provides health care for elderly Americans and Unemployment Insurance provides benefits to working age adults out of work. All Americans and their employers must participate in the programs by paying payroll taxes as defined by federal law. While the programs are an entitlement available to all Americans in order to qualify for benefits recipients must have worked and made contributions to the programs by paying taxes.