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Memorandum explaining the discussion of merits of Congress adopting a federal Value Added Tax - Term Paper Example

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The purpose of this memorandum is to inform about the recent developments in the Congressional policies for the formulation of an integrated federal tax framework with special reference to value-added tax or VAT. …
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Memorandum explaining the discussion of merits of Congress adopting a federal Value Added Tax
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Download file to see previous pages The SBT was developed in as early as 1975. The framework of SBT can be scrutinized to understand the practical implementation of the VAT scheme in American context. In the year 2008, SBT was repealed and replaced by another taxation framework called the Michigan Business Tax, which can be regarded as a form of continued VAT implementation. (Roberts, W. D. & Gell, M. B., 2010) At the federal level, the US Congress is trying to institute the VAT scheme since 1982. “Overall, the options have stressed that a broad-based consumption tax, such as a VAT, could raise large sums less easily than incremental increases in income tax rates, but with less loss of economic efficiency; that excise taxes on selected products could be raised to minor good effect; and that broadening the tax base could raise significant sums and improve economic efficiency.” (Reischauer, R. D., 1994) Current Proposals in Congress for Adoption of a Federal Value-Added Tax The US taxation system is based on a strong historical milieu, and the US Congress is aware of that. The historic Boston Tea Party, which took place prior to the War of American Independence, was related to the unfair tax schemes imposed by the then British rulers. However, the framework of the federal governance of the country remained under scrutiny and criticisms throughout the 19th and 20th centuries. Income tax regulations have been a primary federal concern. The framework of the federal taxation system of America has not been without its problems (Adams, T. S., 1921). Too much dependence on income tax revenues may lead to serious economic problems. The Congress thus proposes to impose a value-added or national sales tax. The Congressional Budgetary Office (CBO) has been pointing at the revenue raising potential of a...
The policy pros of the VAT scheme entail the reduction of the American economy’s too much dependence on the income tax revenues. In the United States, people with higher income have to pay a heavier income tax, which is regarded as unfair by many conservatives (Edwards, C., 2009). A strong revenue network through federal VAT can compensate the inequalities in the current income tax rates. More and more Democrats and other policy makers are focusing on the policy process in regard of VAT. According to them, VAT will provide the federal government with a reliable instrumentation to handle deficit and pay off the debts. John Podesta (who led President Obama’s transition team) thinks that the only way to stabilize and grip the troublesome debt situation is to reduce the hike in health care expenditures, reduce federal spending, and add new means to increase revenue input. The progressive value-added tax scheme appears to be a boon in this context. The policy cons of VAT scheme are rather numerous and thought provoking. The European experience of implementing the VAT is important. VAT is supposed to lower the taxes on profit and income. ...Download file to see next pagesRead More
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