Question

In: Economics

Recently,the idea of changing our federal tax system has been back in the news.What do you...

Recently,the idea of changing our federal tax system has been back in the news.What do you think of the idea of changing our tax system to a sales tax or perhaps a VAT? If you support such a change,would it increase or decrease government revenue?Would its incidence be regressive,proportional,or progressive?Remember,a flat sales tax it actually regressive.Or do you support just altering our current system if so,how?

Solutions

Expert Solution

The change in the tax system that would benefit America is the changing of Federal, state and local income tax with sales tax.The advantages of this would be less time will be spent on tax record keeping and income tax reporting.There will be less cheating as every year more money is lost due to underpayment of income tax. Sales tax affects consumption and so there will be less consumption.Again there will be less demand for accountants and auditors .

Value added tax is based on taxpayers consumption rather than on his income .Income tax puts more taxes on higher income group but vat applies equally to all .Advocates say it increases government revenue.

A value added tax is tax on consumption and poor people spend a larger proportion of their income and so it hits the poor more than the rich. Therefore it is regressive.

With just minor reforms,the current system, might adopt return free filing for a large number of tax payers who now file simple returns.Many countries have adopted return free tax sysytem. .


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