Taxation in the United States

There Are Taxes to Be Paid

Taxes are impositions in the form of financial charges or in some instances levies which a state or its equivalent imposes on an individual taxpayer either directly or indirectly. In numerous occasions, failure to pay taxes by an individual who is a taxpayer is usually punishable by law. From the economists’ point of view, tax is a compulsory transfer of resources from private entities to the public sector without any possible reference to any benefits on its course, by the use of pre-determined criteria. In the United States, modern taxation involves money payment even though there are other means through which taxes can be paid. A good example of an alternative to the use of money in making tax payments is that of undertaking labor equivalent of the expected tax payment.

Taxes remain an important aspect for every government. A majority of government programs do not create any profitable goods or services, hence making governments rely on taxes for the funding of such programs (Altig et. al., 2001). Some of the important programs funded by the government include education, law enforcement, and healthcare. Ideally, the issue of taxation has been an issue of substantive debate in the United States both in politics and economics. This has mainly been based on the method used by the government in determining taxes. One group of Americans has been advocating for the change in the taxation system for the adoption of a fair taxation. Based on this situation, there has been the Sixteenth Amendment to the U.S. Constitution, which mainly attributes to tax payments in the United States.

Summary of the Sixteenth Amendment

According to the Sixteenth Amendment to the U.S. Constitution, the Congress is empowered to tariff income tax without any basis on the population numbers or apportioning to the different states (Zodrow & Mieszkowski, 2002). The government was, therefore, empowered to levy income tax on the American citizens. The United States of America had been experiencing significant increase in the cost of living, an aspect that grossly contributed to the nation experiencing an influx of debts. It was, therefore, a necessity for imposing income tax to increase government revenue in order to keep the pace with the high cost of living. However, on its adoption, the amendment caused substantive friction as it contradicted an earlier ruling by Supreme Court judges on the illegality of direct taxes. The illegality of direct taxes on individuals was a view of the American forefathers who saw the imposition of taxes on people as unfair treat of the citizens by their government. Despite this indifference, the amendment had been adopted and hence overruled the initial Supreme Court ruling on the initial case.

Initially, the main source of federal revenue was the custom taxes and excise taxes (Zodrow & Mieszkowski, 2002). This collection would never cater for all the government’s operations effectively in response to the rising costs of living, necessitating the adoption of the Sixteenth Amendment to the American Constitution. Income tax would be charged on wages that every American citizen earned from working a job, received from various businesses that the American runs, dividends and rental property for those that lived in their own houses (Altig et. al., 2001). This would enable the federal government to collect sufficient funds to run its programs, which otherwise would collapse due to lack of adequate financial resources. Indeed, this was a prime way for the government’s unlimited access to revenue (Zodrow & Mieszkowski, 2002).

There are numerous issues with regard to taxation that the Sixteenth Amendment to the U.S. Constitution causes. The most crucial of all is the aspect that income taxes, regardless of its source or origin, shall not be subjected to the regulation of apportionment as had been done initially on the basis of census (McCaffery, 2006). This has been the main area of disagreements between the proponents and opponents of the amendment.

Main Points of the Fair Tax Plan

For the proponents of the proposed Fair Tax Plan, the current income tax system imposed by the federal government is doing more harm than good to the American citizenry. They argue that the income tax system is unfair, overly complex and misunderstood by a number of Americans (Altig et. al., 2001). The Fair Tax Plan would involve individuals only paying taxes based on their spending, which supports equality to a given extent. The tax would be applied at the point where individual purchase various goods and services for personal use. The fair tax system includes the removal of the current payroll tax. This strategy will adopt a national sales tax, which will allow businesses to thrive better while still generating the same amount of revenue as in the current system. In addition, it will create equitable treatment of all persons,

Comparison between Fair Tax Plan and Current Taxation

There are various aspects of change that the proposed Fair Tax Plan would bring to the current taxation system practiced by the federal government. This will be done on the basis of discussion of the similarities and the differences of current federal tax system and the proposed Fair Tax Plan. Firstly, the Fair Tax Plan would enable citizens to keep their entire paychecks. This is in contrast to the current federal tax system, in which all wages are taxed from all income earners, regardless of the income source.

Secondly, on the basis of prebate, which is a progressive program, a fair tax preposition which will relieve the unfair tax burden from the low-income families. This will be achieved by providing an advanced refund at the beginning of every month, in which purchases made up to the poverty level are tax free (McCaffery, 2006). The current federal tax system imposes a tax on all individuals regardless of actual economic status provided that all citizens earn some wages. This is a stand considered by the proponents of the Fair Tax Plan as unfair on low-income earners, since the tax brackets are very high (McCaffery, 2006).

Another visible difference between the two tax systems is on the basis of what is taxed. The Fair Tax Plan proposes for taxation on all goods and services purchased for consumption, it is believed that such an approach makes every individual liable for tax payments. This strategy will significantly eliminate the occurrences of tax evasion by certain individuals responsible for making such payments but not doing so (Altig et. al., 2001). The current federal tax system, which imposes taxes on income, has experienced numerous occurrences of tax evasions by both individuals and corporates. Taxation of goods and services purchased for consumption at the point of purchase will work to eliminate such evasions. This also brings about the element of control of financial destiny based on the perspective that an individual is liable to pay only tax on his expenditure. This system guarantees individuals the freedom of control from tax burdens as every citizen has the power to regulate the tax he or she remits to the government. This is contrary to the case of federal tax system, in which the government is in control of the tax one pays (Zodrow & Mieszkowski, 2002).

The major similarity between the two tax systems is the benefits associated with them. The positive outcomes resulting from the two tax systems remain similar, as all revenue is channeled towards funding the various government programs. However, there is a slight difference on the pool of resources. Whereas the current federal tax system gathers finances from a small pool of resources, the Fair Tax Plan proposes for a bigger resource pool, in which expenditure is taxed. More revenue is ideally retrieved from expenses than from incomes (McCaffery, 2006).

Potential Effects of Fair Tax Plan

The Fair Tax Plan has various effects in relation to the national debt, social security, unemployment and military spending among others. National debt is contributed to the fact that the government spends much more than it receives in taxes. Such kind of spending is usually contributed to by the government’s imports from other nations. With the Fair Tax Plan’s adoption of a national sales tax, all imports will be taxed before their distribution to consumers, which will significantly lower the debt (McCaffery, 2006). On the aspect of social security, there will be some complexities with the adoption of the Fair Tax Plan. Based on the perspective that this program is funded from tax on the first $110,100 for employment, establishing tax on expenditure would affect this course significantly.

However, high tax significantly decreases unemployment rates. This indicates that with the introduction of sales tax rather than income tax, various organizations would be able to flourish, and hence create more employment opportunities for the unemployed. This considerably increases expenditure rates which in turn raises tax collection from the sales taxes. The revenues will play a major role in reducing the government spending, which includes military spending on the basis that for every two dollars of spending, there would be a substantive cut for every dollar in total tax increases (Altig et. al., 2001). With an indication of the fair tax plan to increases government’s income through taxes by about 10%, the expenditure will be reduced by about 20%. This will establish more orientation towards the growth and stability of the economy.

Conclusion

In my opinion, the Fair Tax Plan will be more beneficial for the future of the United States. This is based on the fact that for the stability of an economy, it is important that the government’s expenditure be reduced with an increase in income. The income is usually increased through taxes. The Fair Tax Plan has got measures that directly tackle these issues, and hence work best to reduce the national debt through expenditure cuts.