Federal Taxation Paper Analysis
Section one – Summary of Article one:
Taxation has been an important topic for researchers and policy makers as well and has been an important source of revenue for the government. In multiple courtiers, it has been a source of economic growth (Palomba, 2004). The aim of this assignment is to determine the two tax related articles and present the summary of those articles.
This section presents the summary of the article “Effects of Income Tax Changes on Economic Growth” written by William H. Gale and Andrew A. Samwick in 2014. The paper analyzes the ways in which the imposition of tax on the income of an individual influences the long-term growth of the economy. The article for the assessment of the influence of income tax on economic growth gathered the cross country data of gross domestic products (GDP) and top tax rates from 1945 to 2010 and compared taxes with gross domestic products (GDP). The research found that taxation makes a little impact on the economies of developed countries or make less impact. It has been determined that changes in income and revenues affect the economic activities, but all tax changes are not equal or pessimistic impact on the growth of the economy. The research shows that tax cuts raise the growth of the economies, as a reduction in income taxes encourage individuals to work more, invest for higher earnings, and save. This is the positive impact of income tax reduction on the economic growth (Gale & Samwick, 2014).
However, on the other hand, tax reduction also creates income effects that in result reduce the need for engaging people in the economy’s productive activities. The research also found tax reduction as a stand-alone policy that generally raises the deficit of federal budget. The increase in deficit means a reduction in national savings and capital stocks of individuals and national income of their future. The research concluded that the impact of tax reduction on the economic growth of countries is uncertain theoretically and just not depends on upon the tax cut structure, but the structure of tax cutting financing and its timing as well. The study went in the cohesion to several other studies and defined that long persisting cuts in taxes by federal deficit results in the reduction of the national income in the long-standing period. The impact of tax increased is either negative or small. it has been determined that the based broadening measures can reduce or eliminates the impact of the reduction of taxes on the budget deficit, but simultaneously it will also reduce the impact on savings, investment, and labor that ultimately reduces the impact on economic growth(Gale & Samwick, 2014).
However, if the income tax rates are cut based on spending cuts then according to the simulation model, it can have an optimistic impact on economic growth. not all taxes have the same impact on economic growth, reforms that contribute to the reduction of resulting subsidies, increased incentives, avoid financing deficit, and windfall has more favorable on the economic growth of the economy in long-term, but it may create an exchange between efficiency and equity as well. The overall findings of the paper present the positive and negative impact of income tax on economic growth and concludes that either positive or negative, but income tax changes do affect the long-term economic growth, therefore, this topic has an importance for policy makers and researchers (Gale & Samwick, 2014).
Section Two – Summary of Article Two:
This section comprises of the summary of the paper “The Effects of a Federal Tax Reform on the US Timber Sector” written by Roger A. Sedjo and Brent Sohngen in 2015. Sedjo and Sohngen in their paper analyzed the impact of federal taxation laws on the United States’ industry of timber. They stated that federal tax reforms in the United States had been the matter of debate for lawmakers. They found that reduction in timber harvesting can result in the loss of jobs and sales, the forest management will decline as well. Therefore, they decided to determine the impact of federal taxation on the timber industry. Analysts for the accomplishment of the study deployed timber supply model.
The study examined the impact on the industry - particularly timber prices, investment level, harvesting level, forest stock, and timber imports – of proposed tax laws. The study uses the majorly proposed taxes and changes associated with them and their impact on the growth of the industry and therefore, on the economy. Through deploying timber supply model, the research effort determined the reaction of the timber industry to the transition from the one to another tax environment. The study concentrated on the taxes that are applicable to timber sector. As the major focus of the study has been in the timber sector, therefore, the study considered all other taxes as unchanged except one condition and this condition include lower income tax rates and corporate tax rate.
The paper determined that changes in taxes have a significant impact on timber industry as due to these changes (increased in taxes), the investment in timber sector of the United States reduced and a substantial decrease in the management level, and regeneration of timber has been analyzed. Due to the changes in taxation, the industry saw a downward revaluation; this negative impact is a question on the policy makers’ policies. The tax changes reduced the physical stock of the industry over time, which means less stock available for supply. In other words, this means having inappropriate ability to fill the demand of customers.
The overall paper presented the negative consequences of a federal tax increase on the industry despite the reduction in the corporate tax. The study declares that although corporate and personal tax decrease has a positive impact on the industry, but federal tax increase can outperform the benefits of corporate tax decrease. Therefore, it is essential that policy makers give careful attention towards federal tax reforms (Sedjo & Sohngen, 2015).
The summary and analysis of articles showed that increase in federal taxation does not positively affect economic growth of countries or any sector, but led industries and countries towards growth decline.
References
Gale, W. G., & Samwick, A. A. (2014). Effects of Income Tax Changes on Economic Growth. The Brookings Institution. Retrieved June 6, 2016, from http://www.brookings.edu/~/media/research/files/papers/2014/09/09-effects-income-tax-changes-economic-growth-gale-samwick/09_effects_income_tax_changes_economic_growth_gale_samwick.pdf
Palomba, G. (2004). Capital Income Taxation and Economic Growth in Open Economies. International Monetary Fund.
Sedjo, R. A., & Sohngen, B. (2015). The Effects of a Federal Tax Reform on the US Timber Sector. Resources for the Future. Retrieved June 6, 2016, from http://www.rff.org/files/document/file/RFF-DP-15-37.pdf
