Federal income tax refers to the structure of impositions of tax against the incomes of various individuals within the borders of the country (Klein 5). The government therefore exclusively taxes the individual income of all working persons within the borderline of the United States. The federal income tax is bound by the law in all aspects. This therefore implies that all individuals as provided in the guidelines supporting the whole system have an obligation of remitting part of their income to the government annually.
The federal tax income system works in a unique way. Salaries of individuals are taxed according to the total amounts earned yearly. This therefore means that there are different levels of taxation imposed on the citizens. There is a formulated mechanism that aims at relating the expected income revenue from different individuals depending on the amounts earned. The federal income tax is determined by the provided mechanism. Different levels of incomes are allocated different rates of expected tax. Generally, the individual federal income tax will tend to increase with the increase in their yearly earnings.
What are the pros of the current federal tax system? The main positive aspect of this system is that it generally taxes individuals so that other government functions can be carried out efficiently (Chandler 88). The IRS is responsibly taking the obligation of ensuring that the lives of every citizen in the country are serviced in the best way. The system is positive in that it encourages citizens to take part in positively building the economy of the country.
The fact that the federal income tax system has been computerized makes it an efficient mode of taxation. This tool and privileged at that is not available in all countries. The United States federal tax income system has been computerized to enhance efficiency and reducing the costs and inconvenience that would otherwise be accompanied by the process of hardcopy filing. Therefore, Americans have the security in believing that they are protected by not only the law but also technology. Individuals can also file their tax returns online. This factor makes the system wholly efficient. The effectiveness of the system only helps to ensure that there are not tax offenders. Further, the computerized system can easily detect and point out possible tax evaders and offenders in numerous aspects. The government can therefore be assured that they it is getting positive response through regular tax remissions from all citizens. Moreover, citizens would not tend to evade federal income tax considering that they understand the sophistication of the system being used by the government. The fear of being victims of the law in terms of being punished for evading tax therefore imposes the responsibility of ensuring that they pay tax.
The Interactive Tax Assistance tool is a new concept in the system. This entity allows individuals to engage the government or the tax authority in any form of queries they might be having. In this respect, the citizens are able to adequately learn and get instant feedback directly from the archives of the tax authorities regarding factors that might be problematic. It is true that many people often have numerous questions regarding taxation. Therefore, with the introduction of this new concept, there will be a higher satisfaction regarding common questions normally persisting in the minds of the citizens.
The taxation tool that helps engage the elderly is also a positive aspect of the federal income tax. The elderly have the provision of being taught in depth about any questions or misunderstanding they might be having regarding the vital issue of taxation. The knowledge acquisition is free of charge to the elderly people. It is a very important tool in the taxation tool. This is so because when aging, which is inevitable, comes through, the taxation system and requirements change. The old generation generally does not get the same taxation rates and even income as the younger generation. Ensuring that the older generation has the basic requisite knowledge regarding taxation policies, once they have crossed the other threshold helps to a large extend in ensuring quality.
However, the federal tax system also has some negative aspects in its making. One of the basic negative aspects of this system involves around the issue of rating. Evidently, the taxation rates in the country exposed to the citizens are indeed very high. The government seems to be competing with countries ranked with the highest taxation rates. The citizens are paying large sums and percentages of their incomes as tax to the government.
The different rates applicable for taxation in terms of realized income annually also play a major role in making the federal income tax negative. The federal income tax obliges only the high income earners to pay tax. Further, the rates of taxation, apart from being generally high, are relatively varying inconsistently with reduction on gross income. The government does not also tax the low income earners in the country. This should not be the case. It is the responsibility of all citizens within the borders of the United States to actively engage in taxation since it helps the steer the economy of the country. The fact that this aspect exists as a provision within the laws governing the federal tax income helps to bring out the factor of inequality.
The taxation system of the government is indeed very complex to some individuals. The applications present and applicable in this aspect are very complicated and lengthy. Various respondents to questions regarding this aspect would clearly enumerate this provision. There is a lot of ambiguity and intricacies connected with the federal taxation system. It is not a positive factor considering that the ones who are mostly targeted are not comfortable with it.
The Internal Revenue Service incurs some operational costs in its operations. The government body operates within the provisions of the law using collected revenue. The current government indicated that it was willing to remit more budgetary allocation for this entity. President Obama indicated that he was willing to authorize an additional $ 1 billion budget. Further, the President indicated that he was going to influence the number of current employees working for the government body. The expected increase in the number of employees is about 9.4% according to the indications of the president. This is a significantly large number of individuals considering the current number of employees. With the full implementation and effect of the employee increase, the number of new workers would be around 4500. This is a very large number of people considering that they will all be new employees. However, given that the IRS is a large national governmental body, the distribution of the employees evenly throughout the country would not be a hard task.
The compliance costs for business, individuals, and also non-profit making bodies vary largely. Businesses are charged differently considering various factors. The type of business, the amounts expected in terms of profits, and even the social impact of the business are all factors that determine the compliance costs of given entities (Watkin 3). Charity and non-profit making organizations are given some tax exemptions. For instance, hospitals may be given tax deadline extensions. With provision of the law, fulfillment of various requirements in the guidelines may change the normal practices of the IRS to given organizations, especially if they are non-profit making. Individuals are charged differently depending on their levels of income. The higher the income earned, the larger the taxation requirements (Bimbaum 13). However, there is a limit to the amount of taxation in line with the income earned.
The number of man hours required to file taxes is incredibly large. Considering the large population in the country, the amount of time it would take to file the tax files can be incredibly large. The automation of the system is what helps cut down on the amount of time spend on this issue. It also relatively enhances the efficiency and accuracy of the system.
Whereas the IRS has enhanced its systems and mechanisms, it is vital to note that there are still numerous tax evaders out there. Individuals and even large organizations are increasingly avoiding tax using clever ways. The amount of money being lost to IRS annually from such cases ranges in billions of dollars. There is the notion that companies are evading tax since it is very high. There is also some truth to the fact that the IRS could be losing more than enough in this respect. By relatively reducing the current high taxation rates, the IRS would be doing itself a very big favor (Kocieniewski 8).
The complexity of the tax codes currently being experienced is evidently problematic. Various individuals can attest to the fact there is a lot of ambiguity in not only the tax codes in use currently, but also other factors in the whole taxation mechanism. This factor negatively affects most of the population, an irony since they are the ones concerned with paying of the taxes.
Describing VAT and Flat Rate
Value added tax is a form of consumption tax. From the view of the purchaser, it is a tax on the buying price. From the perspective of the seller, it is a tax only on the value added to a particular good. On the other hand, a flat tax is a tax system that applies a constant rate of taxation. Value added tax is imposed by the government on the purchase of all goods and services by a certain fixed percentage. Flat rate could be imposed on some economic variables and sectors such as the petroleum industry.
A comparison between federal income tax and flat rate can be made using various avenues. For instance, the complexity involved in the adopted mode of taxation can be used (Froomkin 9). It is evident that the use of flat rate taxation system could relatively reduce the complexities involved with the federal income taxation system. The flat rate would wholly eliminate these intricacies and therefore enhance efficiency (Weisel 2). Further, the compliance costs of the flat rate would be relatively cheaper compared to the federal income taxation system. This would mean availability of more money in the economy (Wolff 56). . Further, the issue of man hours required to comply comes into play. The adoption of a flat rate system only serves to cut down the number of hours that would otherwise be required in the other system. More importantly is the issue of non-compliance losses. A flat rate taxations system would go a long way in ensuring equality among numerous tax payers. This is evidently an issue that has been widely discussed and analyzed by the taxpayers. Some individuals tend to avoid payment of taxes since they consider the system unfair. Adoption of a flat rate taxation system would therefore eliminate this factor and therefore increase the chances of tax payment. It is a basic notion that the flat rate taxation system is fairer in practice than the other federal income taxation system. This only serves to support the issue of flat rate taxation system as an effective mode of taxation.
However, the fact that the flat rate system seems much better does not guarantee an easy and quick change of system. There are various transition issues such as cost involved. The issue of changing a largely endorsed system would also accompany with it substantial education. This also adds up to the issue of cost.
Conclusion
The federal income taxation system is not the best taxation policy and program that can be adopted by the American government. It is vital that the government considered changing the system and adopting others such as the flat rate taxation system.
Recommendation
The government should endorse the flat rate system or any other form of taxation system that would replace the current federal income taxation system. This would help in reducing the negative perception the taxpayers have of the income taxation system and also to reduce the burden the taxation system places on taxpayers.
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