Issue: For the economic development and well being of the Americans, should tax reform that focuses on tax cut be introduced by the Obama administration?
Thesis Assertation: Understanding tax reforms in the USA is of great benefit as it helps re-organize the country’s economic reform policy. This can however only be achieved via the accomplishment of sound tax reforms. Comprehensive understanding of a country’s tax reform strategies determines the prosperity of country’s economy. The USA government should thus undertake rigorous tax reform as it is essential for tax policy making and the general economic development.
Tax reform has been of interest for the Americans. The tax reform has been taking place since 18th century. Besides, there are numerous movements in USA whose sole agendum is to lobby for reform and collection of taxes. Tax reform goals revolve around making the taxation system more progressive, more understandable, simpler and more accountable. Tax reformers also aim at the overall reduction in the rate of taxation of the Americans by the government. American Tax Reformers proposes that tax on income need to be taxed based on one time, at common smaller rate and at a flat rate (Michael, 2007). The tax cut by the Obama administration as one of the tax reforms is perceived to be fruitful in the sense that new jobs will be created at the end of the year. Tax reform however should cover three aspects of tax code; simplicity, equity and efficiency. These can either be accomplished by lowering the standard tax rates, escalating the standard deduction or by ending different tax expenses that vary resource allocation (Bickley, 2009). Fundamental tax reform aims at shifting the Americans tax base from household’s income to consumption. In essence, reformers lobby for broad based taxation that focuses consumption. The reform besides encompass investor taxes, VAT and the tax gap (Bickley, 2009). Since taxation level determines a USA’s economic development, there is dire need for the American government to undertake an appropriate measure as per tax reform is concerned. This paper therefore intends to establish the benefits of employing a tax reform and how tax reforms how it enhances economic prosperity. With the aid of document support, it will be noticed that the United States government should undertake tax fundamentals as a form of tax reform for improved economic development of the country.
1. Tax reform that increases the level of tax paid by the Americans promises an economic slump. An increase in taxes for example hurts SMEs. SMEs will pass the cost to the consumers and this reduces the demand; hence need to cut down on production. Consequently, many businesses will be compelled to close down or lay off workers in order to keep the business grow. As a result of bankruptcy, many businesses will not manage to operate after the reform and may opt for as well fleeing the country to escape the taxes. This results in the loss of employment opportunities provided by the businesses hence economic downfall.
2. Tax reform that aims at increasing taxes leads to the slow growth in earnings due the decline in hours and wage growth. The earnings levels off steadily since the labour will be less productive. The decline in labour demand as a result of hiked taxes translates negatively into employment wages. This adversely affects the labour market as it results in decline in employees’ earnings hence poorer economic well being.
3. Tax reform that hikes taxes notably affect the intensity with which Americans work. Basically, their overall efficiency and productivity reduces. This is however debatable as many ancillary factors may influence labour productivity.
It is therefore significant that for better economic development, the tax reform must be equitable and manageable by Americans and businesses. USA government should thus undertake rigorous tax reform as it is essential for tax policy making and the general economic development.
References
Michael J. G. Tax Reform Unraveling Journal of Economic Perspectives, Vol. 21, No. 1, Winter 2007, pp. 86.
How Did the 1986 Tax Reform Act Attract So Much Support? Retrieved at http://finance.senate.gov/imo/media/doc/92310RWTEST1.pdf
Bickley, J. M. Tax Reform: An Overview of Proposals in the 111th Congress, 2009. Retrieved at http://fpc.state.gov/documents/organization/120965.pdf
Bartlett, B. The Benefit and the Burden: Tax Reform-Why We Need It and What It Will Take. Simon & Schuster. 2012.
Americans for Tax Reform. Retrieved at http://www.atr.org/tax-reform
