Taxation of Household Savings - Literature review Example

TAXATION OF HOUSEHOLD SAVINGS By Location Introduction The UK taxation procedures and subsequent reforms seem to draw much attention in identifying taxation approaches centred on the effects that each of the chosen item influences to the economy. The Mirrlees review adapted into the country’s taxation system seemed a milestone to correcting the previous faulty approaches whereby most of the implemented taxes failed to decipher the desired effects upon the society. According to the review commission, the established reforms were coherent in delivering value to the society since the implementation of any taxes would be based on the actual economic, social, and institutional situations while aiming to deliver long-lasting solutions to the defined environments (Aaron, & Slemrod, 2004, p. 53). The following discussion shall seek to implement an evaluative approach of reviewing the taxation of household savings in the UK, with abundant recommendations on the essence of incorporating the outlined benefits into the system. The established reforms to taxation on savings A description of the current system United Kingdom’s taxation approaches seem to bear abundant solutions in creating revenues desired for the country’s growth. Precisely, the economic measure of defining the present items in terms of the amount of revenue they may serve for the nation seems to be salient in propelling the country towards success. Therefore, the current economic situation is habitable as it defines the potential items of economic importance through the evaluation of their numeric significance to the country. For instance, economists assert that fuel levies and car ownership taxes serve to the advantage of the nation as they sum up a total contribution of £33 billion. This translates to 6% of the revenue created in the country (Auerbach, 2008, p. 70). Economic forecasts indicate that the country’s taxation approaches would be beneficial if a reform would be asserted to ensure that each of the economic items is evaluated differently. Currently, the present taxation approaches fail to evaluate, implement proficiency due to the lack of well-defined execution procedures. It seems that the current taxation system establishes strenuous regulatory procedures to draw revenues from the country’s economic platform. According to the political institutions, the current taxation on savings outlook is valuable since it defines the country’s economy in different phases such that each of the identified items delivers the desired abundance to the nation. Fiscal policies indicate that the demand of goods and services in any economy is dependent on the amount of income accrued by the domestic consumers (Economist Newspaper Limited, 2011, p. 35). Therefore, household savings are inversely proportional to individuals’ ability to purchase different items in the economy. Research indicates that the previous taxation approaches on household savings failed to implement the desired resolutions due to the existence of conflicting objectives in the economy (Mirrlees & Institute for Fiscal Studies Great Britain, 2012, p. 288). In turn, such objectives were detrimental to the acquisition of a well-designed and focused outlook holding to the fact that the concerned institutions evaluated them randomly as though they were correlated. The current taxation system indicates that taxes on the total income of an individual citizen are dependent on the total revenue of such an individual over the allowance. For example, a situation whereby the per capita incomes deplete by 1 unit, the allowances will also reduce thus; the percentage rate set to tax citizens remains at 20%, but the amount accrued from the person with reduced incomes shall also decrease. Essentially, such a resolution in the current economic approach seems coherent to economic growth while rehearsing formidable methods to implement a unified taxation approach. It is knowledgeable that the current economic outlook and the implemented taxation approach on individual incomes implements a controversial platform to the savings system since differing ways gain equated redress (Giza, 2002, p. 71). Therefore, the current taxation system may be oppressive and the review is a beneficial solution to ease the inequities presented therein. Proposed recommendations Mirrlees’ taxation review seems to centre its obligations in deciphering potential propulsion to the economy while holding concerns to the citizens who form the integral group of consumers and producers of the country’s utilities. It is upon the evaluation of the current UK tax system that the group of reviewers proposes for the implementation of various economic changes, citing to the challenges that the existing system forces to the people’s welfare (Mirrlees & Institute for Fiscal Studies Great Britain, 2012, p. 289). Arguably, the current system is deterrence to economic growth holding on the fact that the rate of investments, employment opportunities, innovation, and general economic growth is correlative to the consumers’ per capita, and the will and ability to make and implement an economic decision. Therefore, the review recommends on the abundant influence of citizens in economic propulsion and engages profound surveys to decipher knowledge of the concerned institutions on the importance of implementing an alternative approach. The graphs indicate the importance of the government to assert changes in the taxation approaches as it is the case with certain asset classes (Great Britain, 2011, p. 79). The review further asserts on the importance that the approach shall be to the UK society since the proposed system shall focus on the life-cycle savings rather than evaluating all types of savings at a unified approach. The past reforms were at an extent detrimental since the ideology of taxation on savings led to the taxation of an individual’s personal and other forms of savings. For example, a citizen would be taxed on his income, savings, allowances, and other sources of incomes, including inheritance (Leaman & Waris, 2013, p. 14). The reform acknowledges on the importance of eradication of taxation of the overall per capita income in monetary terms while recommending on a valuable solution of enforcing a rate-of-return allowance. This would preside over equities and assets correlated to individuals’ life-cycle savings. Further, the commission sets an affirmative approach in resolving the issue of retirement benefits taxation as the asserted recommendations imply that the desired taxation system should target to keep and improve the pension treatment approaches (Organisation for Economic Co-operation and Development & OECD, p. 44). These recommendations set an ideal platform for implementing a neutral taxation system on savings without oppressing the target groups of taxpayers. The purpose of implementing a tax system, which has a neutral treatment of the life-cycle savings for the vast majority of taxpayers Substantial analyses into the Mirrlees Reforms indicate that the nature of the revision is to implement a system that will benefit the majority of UK’s taxpayers. According to the system reformers, the newly proposed system shall serve as a solution to the existing distortions of information on individuals’ life-cycle savings. Similarly, the taxpayers’ population will saliently contribute to constitutionally sound systems, whether resting as employees or employers in the UK economy. The system purports to eradicate the lump sum pension approach, citing on the vitality of ensuring that each person in the population is subject to taxation as a solution towards increased gross national product (GNP), and global competence in reference to the GDP growth rate (Mirrlees & Institute for Fiscal Studies Great Britain, 2012, p. 299). Economically, a sound taxation system shall influence the population towards the establishment of planned business ventures, and the birth of new opportunities through aggressive innovation. Further, the establishment of a sound taxation system on the life-cycle income is incremental towards the purchase of durables since the consumer population will be knowledgeable of the fact that the government will not execute the duties in multiple dimensions. The concerned authorities establish their prospects upon their system, citing that a sound taxation system shall serve to the benefit of a majority of the taxpayers since it will disengage the population from the vice of borrowing, holding to the fact that they will evade taxes (Economist Newspaper Limited, 2011, p. 39). Contextually, such practices will be non-existing with the implementation of the neutral taxation system. The authoritative system shall be precise to ensure the eradication of constraints that prevail as obstacles in the economy as they restrain it from yielding the benefits set in the theoretical information. Secondly, the commission cites that a step towards the implementation of the proposed reform shall serve to the benefit of the economy by merging it to decipher the direct effects of the empirical improvements (Mirrlees & Institute for Fiscal Studies Great Britain, 2012, p. 309). Personal opinion on the strengths and weaknesses of the proposals While the commission indicates the need to improve different aspects of the economy through the reforms, it is knowledgeable that the economic, social, and other environmental factors tend to be dynamic. Concurrently, the commission’s reforms bear abundant strengths as outlined in the life-cycle savings proposal since this will ensure that every individual contributes towards the nation’s revenue. Evaluations adapted from past surveys indicate that the new taxation system must combine the RRA and the TEE regulatory approaches to the treatment of similar assets. Arguably, such a resolution is an ideal bearing on the potential it contains in enabling the authorities to identify a revenue structure and component to its base. Mirrlees Reforms decipher adequate knowledge to the taxpayers thus accruing strengths through the imposition of knowledge pertaining to the extent at which the proposed system shall restrain the defaulters from evading taxation since it will not establish a safeguard to the citizens seeking to borrow through the eradication of the smoothing factor. The newly proposed reform seems to be a precise remedy to ensuring that the UK’s population contributes equitably to the taxation needs despite the amount of earnings or its spread over a stipulated period (Aaron, & Slemrod, 2004, p. 59). This reform seems as the best solution as it indicates on the inclusion of the planning-gain economic strategy, a factor that will enable the authorities to be knowledgeable of the registered taxpayers and the changes in the incomes that in turn must affect the total revenue they remit (Great Britain, 2006, p. 90). Despite the established strengths, it seems that the reforms shall face challenges due to the existing unsorted drawbacks therein. For instance, an improvement in the taxation approach on household earnings may be influential to general improvements thus; this translates to increased investments in the economy (Cebreiro & Organisation for Economic Co-operation and Development, 2010, p. 88). Therefore, the proposed reform, economic progression since it shall restrain profound growth of beneficial items, which are important to the social welfare. The reforms meet challenges towards the establishment of the outlined resolution of replacing stamp duty with taxes on domestic properties. However, the commission seems idealistic of the situation as it asserts on the salient role that the administrative bodies should assert in grasping the challenge. A descriptive approach towards the establishment of the potential winners and losers of the taxation approaches on household savings In every economic situation, there are winners and losers who emerge after the implementation of a certain changes. In reflection to the reforms proposed by Sir Mirrlees and the rest of the team, some taxes should be eradicated to pave way for the household taxation methods. Arguably, every economy desires to achieve profound growth across all units of national and international significance. Therefore, as the governments sought to fund these utilities, the authorities must be certain of accruing beneficial outcomes from the outlined resources (Mirrlees & Institute for Fiscal Studies Great Britain, 2012, p. 3149). This is achievable through the assertion of a solution to ensure that every aspect of the economy contributes transparently to the total revenue from the services remitted by the authorities extend to benefit the entire society. It is of importance to note that the ageing population is a winner over the reforms since they are the reforms’ stipulated age of the life-cycle whereby they will be accruing beneficial returns over their savings. Despite the taxes implemented on the pensions, these groups seem to be advantaged over the young-aged population, which will have to adapt and cohabit with the effects of the reforms (Economist Newspaper Limited, 2011, p. 75). In accordance to the evaluations, it is understandable that partnerships are among the groups of organisations that will accrue the outlined benefits holding such a fact to the knowledge that every partner will face taxation solely, a factor that will also include the effects of individual’s profits in accordance to the initial contributions towards the required capital. Conclusion The evaluative approach established upon Sir Mirrlees Reforms towards the rebirth of a better alternative to the taxation system serves to the benefit of the society. Arguably, the study indicates the contributions that the reforms shall present to the society despite the existence of political and economic dynamics. Subsequent evaluation of the taxation procedures directed towards household savings reflects abundance and the precision of equity since every individual shall contribute towards the country’s revenues rather than enforcing taxation on organisations, vehicles, and individuals at different levels, a factor that presents biased. Bibliography Aaron, HJ & Slemrod, J 2004, The crisis in tax administration, Washington, Brookings Institution Press. Auerbach, A.J 2008, Ageing, financial markets and monetary policy, With 38 tables. Berlin [u.a., Springer. Cebreiro, A., & Organisation for Economic Co-operation and Development, 2010, Choosing a broad base, Low rate approach to taxation. Paris, OECD. Economist Newspaper Limited. 2011, Guide to economic indicators, Making sense of economics, Hoboken, Wiley. Great Britain, 2006, Pensions reform, Fourth report of Session 2005-06, London, Stationery Office. Great Britain, 2011, Principles of tax policy, Eighth report of session 2010-11. London, Stationery Office. Guiso, L 2002, Household portfolios, Cambridge, Mass, MIT Press. Leaman, J, & Waris, A. 2013, Tax justice and the political economy of global capitalism, 1945 to the present. New York, Berghahn. Mirrlees, JA., & Institute for Fiscal Studies Great Britain, 2008, Tax by design, The Mirrlees review. Oxford, Oxford University Press. Musgrave, RA., Head, JG, & Krever, RE. 2009, Tax reform in the 21st century, A volume in memory of Richard Musgrave, Austin, Wolter Kluwer Law & Business. Organisation for Economic Co-operation and Development, & SourceOECD, Online service, 2007, Encouraging savings through tax-preferred accounts, Paris, Organisation for Economic Co-operation and Development. Read More