In: Accounting
A strong desire continues in the business community for a tax system that is simpler, more competitive, and conducive to economic growth. Discuss at least two suggestions to simplify the tax law. Do you think these suggestions will be effective? Why or why not? 1- 2 paragraph, include references
Solutions:
I agree with the statement in part 1 of the question. A Simpler, more competitive Tax System is essential for a smooth and better running of economic growth of a country. Business community is found eager to see The Tax System more simplified often, It satisfies both the communities, i.e. Government and the Taxpayers. There are so many limitations are in the current tax systems which are demanding to be modified in accordance with the Current Regime. In my point of view, the main two Suggestions to simplify the tax law could be summarised as follows:
(1). Alternative Minimum Tax Needs Some Modification:
A particularly complicated feature of the individual income tax code is the existence of the Alternative Minimum Tax. AMT actually designed to ensure that high-income households paid at least some income tax, But the AMT now affects nearly 5 million filers, most of who already pay significant amounts of income tax and are far from the top of the income distribution. The AMT’s basic problems have not been fixed yet. Modifying the AMT so that it only affects higher-income taxpayers who would otherwise pay little tax would return the tax to its original purpose. But it would hardly make the tax system simpler for those still subject to it. Repealing the AMT would both simplify the income tax and eliminate the need for annual patches. Several recent tax plans have called for the AMT to be eliminated outright. Even some economic reports indicates affected by this revenue would decrease by roughly $30 billion annually. However, Eliminating the AMT would make the tax system less complex for millions of households, by sparing them from having to calculate their tax liability under two sets of rules.
(2). Family Tax provisions need Some Reforms:
The individual income tax contains several provisions that lower taxes for households with children and dependents. These include: the child tax credit, the personal exemption, the earned income tax credit, the child and dependent care credit, and the head-of-household filing status. Navigating each of these different provisions makes the tax filing process more complicated for families with children. For instance, many of these provisions use inconsistent definitions of “child.” The child tax credit can be only be claimed by households with children under 17, while the personal exemption applies to children under 19 (or students under 24). These different definitions likely cause confusion for taxpayers and may lead to errors in filing. In addition, several of these provisions are complex for households to calculate and are subject to a number of detailed eligibility rules. There have been a number of proposals to align and consolidate the various family-related provisions in the tax code. For instance, the House Republican tax plan would eliminate the personal exemption for children, and would use the revenue from doing so to increase the child tax credit. Personal exemptions, the child tax credit, and the earned income tax credit (EITC) all provide benefits for households with children. But each imposes different restrictions on participation, offers varying benefit levels, and requires beneficiaries to complete separate parts of tax returns. Combining all three benefits into a single refundable credit would both simplify tax filing and coordinate benefits. It could be difficult, however, to design a simple single credit that would approximate current benefits. Hence, it could be said that some reforms to create a simpler and more understandable system of family credits is needed.
After explaining the two suggestions above, we can say that these suggestions will be effective. It will benefit both the Citizen and the Nation. We can expect some reforms in the near future as some actions have already been taken up by the congress to accomplish it.