The progressive taxation means that the taxes are being collected in proportions in the ability to pay, which means the people who are earning more are taxed at a high rate while the people with less income pay a lower percentage of tax. The higher burden is put on the wealthiest citizens. The taxation is reducing the gap between the wealthy and the poor (Bergstrand, Cosimano, Houck, Sheehan, 2015). I believe the progressive taxation is good, but still many changes must be done for the United States since the country is based on the statistics on the first place among the other developed countries in the area of income inequality and redistribution. Based on the Gini Index that is showing inequality and is the measure between 0 and 1, where 0 means that everyone in the country has exactly the same income the US has a score 0.42 (The Economist, 2013). Regressive tax is worth worrying about, since in regards the individual income puts a greater burden on the citizens of low income to the poor, since their ability to pay differs from the higher income citizens. It is the opposite of the progressive taxation and can increase the income inequality (Bergstrand, Cosimano, Houck, Sheehan, 2015).
We should worry about the distribution income since is it widening and the inequality is becoming bigger. The total income has increased, but so did the difference between the rich and poor. The gap between incomes among different groups of wealth is widening (Bergstrand, Cosimano, Houck, Sheehan, 2015). With the majority spending less cannot boost the further economy which can lead to greater economic problems with allocation of wealth in the fewer top earners. Sole market forces cannot grant the equal distribution of income and that is why we should not allow the market forces to make that determination. Without the interventions and government taxation the income inequality would increase and become more concentrated in the hands of fewer people, the trend we are seeing now of rich getting richer would only increase.
The politicians are referring to the Laffer curve where with the lowering the taxes the people can spend more which means that the country can get more tax revenue collected from the products and their taxation. It can create more jobs for the public is spending more and the economy is boosting. On the other side with the lowering the taxes we also collect less from income taxes, which means people pay less to the state. The government is shifting tax burdens to generate revenues where it believes it will have the least effect, so with the lowering the tax the government would shift the burden to other parts. The Congressional Research Service study has shown that there is no evidence that reduction of tax would spur the growth and that theory is just the theory. The various researches and comparisons to the past events showed that lowering taxes would not spur the economy growth and would cause further inequality (Blodget, 2012).
The trickle-down economy with favoring the wealthy serves as a criticism of the free market. It ensures that the rich people do not leave the country. The number of jobs and innovation does not necessarily increase with the allowing the rich and the wealthy to allocate the money. It has been highly debated whether it can lead to the increase of jobs or not. With more earning among the richer the society as a whole does not profit. To simplify the complex debate I believe that if it the concept would work we would see with more income among the richest also more innovation and greater number of jobs, but we haven’t, even though the rich are getting richer and that is why the “trickle-down” economy does not work.
Regarding the current debate on tax brackets those above $250,000 per year receive a permanent reduction in taxes as is being considered for lower income individuals. The tax brackets are the continuation of the progressive taxation and can help to reduce the income inequality.
In my opinion, there is no clear evidence that would support that the income distribution and therefore the government actions contributed to the recession. But the recession did affect the unemployment and income distribution.
In our tax law I would like to see the changes in the taxation of the biggest corporations which is resulting in the allocation of the wealth in the hands of a few people. The distribution of income and wealth should be changed since it is not right that the minority has in hands more than the majority of the bottom. This needs to change and it can happen with the potential higher taxes for the wealthiest so that the US will become more equal as are the rest of the developed countries in the matter of income and wealth allocation.
The distribution of wealth is a lot more unequal than the income. Wealth inequality is happening because of the lack of savings in the middle classes. The historical levels of wealth inequality have drastically increased. It is concerning since the wealthier can spend money and the middle class the majority of the population cannot which is affecting the overall economy and the economic growth. Further on, the poor are staying poor since the wealthy have allocated the majority of the wealth in the country. The wealth inequality is hurting the business and also the whole society. 0.1% of the population owns 22% of wealth and the bottom 90% of families owns almost the same share of wealth as the 0.1% (The Guardian, 2014). It is concerning that so few are controlling the investments in the system by allocating the wealth in the hands of a few people.
The government plays a vital role in the distribution of income and wealth with the progressive income tax, where the higher incomes are taxed at the higher rate, with public assistance and economic development programs it further redistributes wealth and with benefits and services further effects on the difference in the income. The role of government is to implement the particular taxation and of course with the collected tax further distribute the wealth among the citizens. It regulates the distribution income with the federal taxes and transfers. The direct with the tax on income and indirect taxes with paying taxes by purchasing goods and services affect every citizen.
Work cited
Bergstrand, J. H., Cosimano, T. F., Houch J. W., Sheehan, R. G. (2015). The Changing Distribution of Income in an Open U.S. Economy. Netherlands: Elsevier Science B.V.
Blodget, Henry. (2012). Bobmshell: New Study Destroys Theory That Tax Cuts Spur Growth. Retrieved http://www.businessinsider.com/study-tax-cuts-dont-lead-to-growth-2012-9
The Economist. (2013). Democracy in America: American Politics. Retrieved http://www.economist.com/blogs/democracyinamerica/2013/11/inequality-america
The Guardian. (2014). US Wealth Inequality – Top 0.1% Worth as Much as the Bottom 90%. Retrieved http://www.theguardian.com/business/2014/nov/13/us-wealth-inequality- top-01-worth-as-much-as-the-bottom-90
