Federal Tax Structur

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Federal Tax Structur Over the last 40 years, the U.S. federal tax system has undergone three striking changes, each of which seems to move the federal tax system in the direction of less progressivity (Piketty & Saez, 2007). First, there has been a dramatic decline in top marginal individual income tax rates. Second, corporate income taxes as a fraction of gross domestic product have fallen by half, from around 3.5– 4.0 percent of GDP in the early 1960s to less than 2 percent of GDP in the early 2000s (Piketty & Saez, 2007). Third, there has been a substantial increase in payroll tax rates financing Social Security retirement benefits and Medicare. However, the conclusion that these three changes have reduced the progressivity of the…show more content…
One tax rate makes for easy computation by the Internal Revenue Service and straightforward payments from taxpayers (Meehan). Because the flat tax taxes only one income, it is easier to understand and to report. Taxpayers save the financial cost of complying with current IRS regulations, which often includes lawyers, accountants and other resources (Meehan). The flat tax remains a popular idea in part because it eliminates double taxation (Meehan). It removes the section of the tax code that is biased against the formation of capital (Meehan). It eliminates the death tax, capital gains tax and double taxation of savings and dividends (Meehan). Families and individuals are not required to report dividends, interest or other business-related income; this income is taxed at the business level (Meehan). The flat tax makes it unnecessary to pay interest, dividends and other business tax at the individual levels (Meehan). A flat tax employs territorial taxation, which is when the government only taxes income that is generated within national borders (Meehan). In the global economy, taxes remain a critical component of business; countries with low-taxes benefit from jobs and capital (Meehan). A good tax policy is important to generate revenue for business and also because the penalty for a poorly received tax system on a global scale may be substantial and long-term (Meehan). The flat tax eliminates…show more content…
Low-income individuals and families must spend money on the same necessities required by higher-income people (Meehan). However, after the necessities are purchased, the poorer taxpayers, because they earn less, will have less money left over to pay taxes, at the same rate as those earning higher income amounts (Meehan). Implementing a flat tax system could dismantle the IRS (Meehan). Many view the IRS as an imposing, intimidating arm of government; however, this institution employs numerous people who were trained to work in the tax industry. IRS employees would most likely lose their jobs under a flat tax system (Meehan). Many believe that a flat tax system reduces tax for, and actually benefits, high-income earners (Meehan). For example, if the tax rate were 10 percent, then someone making $1,000 would have $900 spending income left after taxes. Someone who makes $10,000 is left with $9,000 after taxes; this inequity is thought to prove that a flat tax disproportionately benefits the rich (Meehan). If the rich paid less tax, many believe that the government would lose significant revenue

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