Organizational Tax and Planning - Tax Reform - Research Paper Example

 Organizational Tax Research and Planning In order to restore the economy of America, different tax provisions to bring about development, job creation and growth of the economy have been made. Based on my research, the proposal that I believe to be the most viable and financially attractive to America’s economy and to the taxpayersis the temporary tax relief to create jobs and jumpstart growth. In this provision, the administration proposes to extend the current point reduction in the social security tax on employees for the first $110,100 of salaries and wages (Department of the Treasury, 2012). The same provision will also apply on self-employed persons earning over $110,100. I believe that this proposal is the most viable because it will have huge financial benefits on both the workers and corporate taxpayers. The proposal will also be extremely beneficial to workers who have been hit by the recession immensely. In addition, more jobs will also be created in the economy. Reduction of payroll taxes also acts as financial assistance to middle and low class families. Provision of a 10% tax credit for new jobs and wage increases will stimulate job creation in the corporate world thus putting more Americans back to their jobs. Therefore, the tax relief targeted at small businesses will act a strong foundation for recovery from the economic recession (Department of the Treasury, 2012). This proposal can be implemented by providing qualified employers with wage increases accompanied by a tax credit (Committee on Ways and Means, 2013). The tax credit should be equal to 10% of the increase in the employer’s wage increase. The maximum amount of the increase could be set at five million dollars per employer. On the other hand, the maximum credit should be $500,000 in order to focus on the benefits accruing to the small businesses (Urban-Brookings Tax Policy Center, 2013). Indeed this proposal is the most viable. This rationale can be explained by the fact that a tax credit would reduce labor costs in the economy thus, encouraging firms to hire more workers (Jurinski, 2000). Employees will also benefit since, they will secure job opportunities in the economy. A tax credit would be more beneficial compared to a flat subsidy because, the temporary tax credit for all firms would lead to sharing of the credits and providing an incentive that would lead to an increase in employment and wages that previously, would have been increased without an incentive. An incremental tax credit will also have an effect of rewarding corporate businesses by expanding industries and regions in the country while at the same time helping those firms and industries that might be still experiencing economic stagnation. Therefore, indeed corporate taxpayers have huge benefits to reap from this policy. Businesses experiencing labor shortages due to the recession will also benefit from the increase in the employment (Jurinski, 2000). With the tax relief, businesses will also increase their profitability level since; they will have increased their productivity. The key impact of repatriating foreign profits earned without incurring a federal tax liability is reduction of a tax expense on corporations (Urban-Brookings Tax Policy Center, 2013). Corporations will have a lower trading expense when given a tax credit on the federal tax. In addition, many trading corporations will also be attracted to engage in foreign trade. This is because; most businesses normally shy away from foreign trade due to the high federal taxes. Therefore, they prefer trading in the local market in order to avoid incurring these tax expenses. Reduction of the federal tax liability will also have positive implications on the US economy (Jurinski, 2000). This is because there will be many businesses engaged in foreign trade and thus, there will be an increase in foreign income generated to the country. The demand for goods and services produced in the country will also increase since; corporations will be serving both the local and foreign market. With increased economic activity in the country, there will be creation of more business opportunities and thus there will be a reduction of the unemployment level in the country. This will be a very significant step in aiding the country to restore itself from the great economic recession. This rationale can be supported by the fact thatfederal tax liabilities normally limit economic activity in a country. With federal taxes, only few businesses get to participate in foreign trade. Therefore, they act as a hindrance to full economic development. Reduction of the liability also aids in attracting more foreign trading partners (Jurinski, 2000). This is because; when the liability is reduced, there will be a reduction of the prices charged to the foreign traders. On the other hand, when corporations incur the federal tax liability, they end up increasing the prices charged in order to recover the tax expense incurred.However, corporations should still incur some federal tax liability. This is because; if all the federal tax liabilities are waivered; the government’s total revenue might be affected negatively. The government needs some amount of revenue to run its different expenses. In addition, incurring some federal tax liability will also help to ensure creation of a favorable competition in the foreign market. The corporation tax that I propose to be eliminated is the taxation of capital gains on qualified business stock (Urban-Brookings Tax Policy Center, 2013). Corporate taxpayers should be allowed to exclude a portion of the capital gainsfrom tax if the stock has been held for a period of more than five years. This will encourage more investment in firms since; the tax liability will have reduced. Other corporate taxes that should be eliminated are the taxes on depreciation for certain property. This helps a company to reduce its overall costs. This is because; it reduces the current tax liabilities of the corporation (Urban-Brookings Tax Policy Center, 2013). This will also encourage companies to make more investments since; the taxation rate will also have reduced. These corporate taxes should be eliminated because; firms must always acquire more assets. Therefore, if these taxes are not eliminated, the more the assets acquired, the more the taxes that will be paid by the company. Therefore, depreciation should be deducted before accounting for the total tax liability (MECACC, 2013). This is because; depreciation does not involve an income into the business, in addition, most of the taxes in a business normally stay in the business for a period of more than five years. Therefore, this implies that since the business normally calculates depreciation annually, then the business will have a recurring annual tax expense. Another reason as to why such taxes should be eliminated is that; taxes on assets without considering the depreciation value of the assets increases the tax expense of the assets. Corporations should consider the fact that assets do not remain of the same value each year. Therefore, the tax base used for the assets should be different in order to ensure that the tax liability is not overstated. Overstating of taxes on assets causes businesses to have overstated expenses and lower incomes since; the assets are not able to generate income as compared to the time when they were of a higher value. These corporate taxes should also be eliminated because; they limit the performance of most corporations. Most small businesses are also hindered from transforming into corporations due to the large number of corporate taxes. Therefore, this also limits the country’s economy since; the degree of performance of the business entities is limited. Elimination of these corporate taxes would have significant effects on the both the taxpayers and the country’s economy because it revolves around many players in the economy. One positive impact that elimination of these corporate taxes would have on the economy is reduction of operational expenses on corporations thus, improving their performance (MECACC, 2013). In addition, the profitability of the firms would also increase since; the firms would be operating without incurring some miscellaneous expenses. Therefore, elimination of these taxes ensures that the firms in the country operate effectively (Urban-Brookings Tax Policy Center, 2013). Many Small businesses will also be able to transform to corporations since; corporation taxes will be lower. Corporations will also be able to create more labor opportunities since labor costs will have reduced. Therefore, more Americans will be able to secure employment opportunities in these firms. Reduction of unemployment level in the country will have an overall positive effect of increasing the level of output in the country and overall per capita income. This is because; many people will be earning their own incomesand thus; they will be contributing positively to the economy. The overall GDP of the whole country will also increase since; most of the businesses in the economy will be productive and thus contributing to the country’s income. Other positive impacts include an increase in the business opportunities in the country. Many individuals in the country will be attracted to start business corporations in the country. This is because; they will want to take advantage of the favorable accounting statements of corporations. Therefore, elimination of some corporate taxes can cause massive economic growth and development in country (Urban-Brookings Tax Policy Center, 2013). However, elimination of these corporate taxes will also have a negative impact on the economy (MECACC, 2013). To begin with, the economy might be incapable of providing sufficient revenue to the government. Therefore, the government might end up lagging behind in some of its projects. Therefore, the country might be faced with the issue of a wide economic gap. This is because; while some individuals will prosper in the business field, others will continue to wallow in poverty since; the government will not be in a position to help the misfortunate persons in the country. This is because; it will be lacking sufficient revenue to fulfill its responsibilities. The government needs this revenue in order to fulfill its responsibilities such as establishing projects for supporting the marginal areas of the country. Other negative effects include poor competition among corporations in the country. This is because; the cost of operation will have reduced and thus, corporations will not have a strong base for competing in the market. Consequently, this may lead to poor quality operations and the established corporations. An alternative tax method that can be established for these corporations is equal taxation for the business assets while accounting the depression of the assts. In addition, taxation of capital gains of qualified stock should also be eliminated to avoid redundancy in taxation. Still the taxation method should also ensure a wage raise and a tax credit in business corporations. This will aid both the companies and employees in the country. Corporate taxpayers will benefit significantly since; there will be reduced labor costs (Department of the Treasury, 2012). These tax changes will also be very beneficial to the whole economy since they will increase the economic activity in the country. Individuals will have a wider avenue of participating in the economy and thus, the economy will be more active. The tax method should also ensure that the federal tax liability for corporate taxpayers is reduced and thus; corporate businesses will be able to improve their business operations. This rationale can be supported by the fact that; this is a method that will be beneficial to employees in the country and to the economy of country too (Urban-Brookings Tax Policy Center, 2013). Clearly therefore, this alternative tax method will have more benefits as compared to the current system. This can be also explained by the fact that the current system does not increase the number of employment opportunities in the country. This is because with the current system, the labor costs in business corporations are very high. Therefore, these proposals should be implemented in the economy since; they will ensure sufficient operation of the economy. References Committee on Ways and Means (2013).Comprehensive Tax Reform | House Committee on Ways & Means. Retrieved  2013, from http://waysandmeans.house.gov/taxreform/ Department of the Treasury (2012, February).General Explanations of the Administration’s Fiscal Year 2013 Revenue Proposals. Retrieved July 8, 2013, from http://www.treasury.gov/resource-center/tax-policy/Documents/General-Explanations-FY2013.pdf Jurinski, J. (2000). Tax reform: A reference handbook. Santa Barbara, Calif: ABC-CLIO. MECACC (2013).Current Legislative Initiatives and Congressional Tax Proposals. Retrieved  2013, from www.mecacc.org/currentinitiatives.html Urban-Brookings Tax Policy Center (2013).Tax Proposals in the 2013 Budget. Retrieved  2013, from http://www.taxpolicycenter.org/taxtopics/upload/2013-Budget-Analysis-FINAL-3.pdf Read More