Effective Tax Structure in the United States - Research Paper Example

Inherently, the Democratic Party openly endorses a tax system that will see the wealthiest, together with corporations pay their fair share of tax. Moreover, they are calling for decisive steps to be made in order to restore fiscal responsibility.  Actually, Obama proposes that tax for people earning over $250,000 annually be raised. Essentially, this will affect about 1% of the country’s population, and moreover, this is expected to reduce the deficit by about $ 4.2 trillion in the next decade. In addition, the democratic platform follows the framework for corporate tax reform that was introduced by the president (Kapur 5). Actually, the reform advocates for use of closure of corporate tax holes so as to pay for lower tax rates.  Notably, also, the platform also seeks to undo corporate tax credits together with deductions for the businesses that mainly shift jobs overseas and at the same time lower the rates for the corporations that have invested in the country, especially in research and manufacturing.

            On the other hand, Gleckman purports that the 2012 republican platform proposes an absolute overhaul of the federal tax system and instead, it calls for a national sales tax or value-added tax as the best solution to the country’s budget problems (4). Further, the republicans claim that the move will involve instituting a value-added tax, which entails a tax that will confiscate money at different stages of the production process. More importantly, Romney also plans to cut taxes by 20 percent, for all as well as do away with alternative minimum tax together with estate tax as well. In addition, his tax plans also speak of eliminating taxes on investment income for couples earning an income of below $200,000 (and $100,000 for individuals), as well as maintaining the current low tax rates for those with high incomes.

            The US federal income tax structures are based on models of aggregation in expenditure.   Application of the Euler equation approach of Hall (978), the study ignores the end information and hence cannot understand the historical experience. Demographic impact, which is a critical issue in the US integrates interest-rate effects, wealth, and the role of land prices in residential areas.  Analysis of the inter-temporal consumption theory, which is based on the no property income other than the total disposable income as the determinant of consumption aims to show continued support (Hall, 15). Currently, 140 million Americans' tax returns are filed every year while 65 million of these have Zero tax liability. Inherently also about 70 million Americans, file an average of $35,000 adjusted gross income (AGI).

            Evidently, tax evasion is a major issue affecting a number of countries around the world. Actually, according to Johnson, the primary significant issues with regard to tax include the taxes on both income and wealth and the taxation of capital gains (21). Therefore, future tax legislation will highly call for governments to improve their access to information regarding taxpayers. Moreover, governments should recognize the need for customer transparency. As a result, this will not only increase the revenue collected by the government but also it will encourage socially acceptable activities and at the same time discourage unacceptable activities.

            In the United States, an effective tax structure will require a system that is progressive. This means that as the income of individual increases, the percentage of income the individual pays as tax will similarly increase. Consequently, those who earn higher income will pay more in total taxes, as well as their rate of taxes will be higher. Inherently, people earning higher incomes should pay more since they have the ability to do so without foregoing critical situations.  For instance, while a low-income earner will forego things like post-secondary education or basic medical care, a high-income earner will forego such things as an expensive vehicle or a second home. In other words, a progressive tax structure provides a way of addressing economic inequalities in society, by recognizing the ability to pay principle.

            Arnold states that a progressive tax structure will produce a given amount of revenue with the least economic effect (234). Since marginal propensity to consume has a tendency of decreasing as income goes up, collecting proportionally more taxes from the households with high income will also have a tendency of maintaining a higher level of demand and hence generate more economic activity. Therefore, a progressive tax structure will encompass the ideals of equity and fairness.