Effects of Tax Rates on Economies - Research Paper Example

Effects of Tax Rates on Economies Name Institution Affiliation ABSTRACT Taxation and tax rates determine the financial policies of different countries. These countries align their financial goal, strategies and development depending on the taxation policies in the country. The structure and financing realized are crucial in achievement of economic growth. Contrariwise, tax rate cuts can significantly encourage individuals to save, work and invest. When tax cuts are not however financed by immediate spending cut, federal budget deficit will be realized; which might effectively reduce a national’s savings. Surprisingly, for a year now UAE has never has never incorporated VAT systems, as such, it is considering the integration of such policies. The introduction of such systems would mean that the country would reduce its competitiveness in the business environment; notably attracting foreign investments. This paper will help people understand the impact of taxation on a country’s financial strategy, exploiting information regarding various tax laws observe in various countries and elaborating the least and most tax friendly places globally, with special emphasis put on the UAE where there is no taxation. As such, it draws upon secondary literature from divergent researchers in creating a well informed approach to understand taxation systems. Contents 1.0 Introduction 4 2.0 Research Question 6 3.0 Literature Review 7 3.1 The Difference between Effective Marginal Tax and Effective Taxes Rates 7 3.2 What is the Importance of Putting Tax Rates? 9 Reaganomics 10 4.0 Methodology 15 5.0 Research Ethics 16 6.0 Limitation 16 6.1 Accessibility of Data 17 6.2 Inadequate Time 17 6.3 Information Sensitivity 17 7.0 Conclusion 18 Taxation 1.0 Introduction Taxation is a critical issue that affects the financial strategies and policies of a given country. Taxation plays an important role in determining strategies employed in investment. People like investing where as little as possible will be deducted from their turnover. Therefore, taxation is among the key factors that determine investment plans. Investors are keen to evaluate the amount of taxes they will be required to pay before opening up businesses in different areas. Generally, global investors pay taxes for foreign investments, capital gains, dividends and interests. Payment of investment related taxes depends on factors such as the investment income, tax sheltering plans, the corresponding tax laws and the type of investment. Interest earned during investment is subject to taxation at full rates of income, with the rate of taxation being defined by the marginal tax rates. All the other taxable revenues have their corresponding rates and policies. The economy of UAE is among the most diversified and liberal economies in the GCC region. Interestingly, even in comparison to European, European Union and other nations in the Middle East, UAE stands out as the only country without a well-defined taxation body. Taxation in the country is done exclusively on major gas and oil companies, hotels and international banks. In essence, there exists no federal tax system in the country; each emirate is allowed to formulate and implement its isolated tax policies. However, even in the individual emirates, there is no corporate taxes, withholding taxes, value-added taxes, capital gains taxes and personal incomes taxes. Dubai, Abu Dhabi and Sharjah use their 1965, 1968 and 1969 tax decrees respectively. UAE citizens pay compulsory pension fees of about 5% of their salaries. There are plans to have expatriates in UAE pay similar pensions. UAE also exercises a double taxation system for specific countries who have signed the double taxation treaty. The treaties curtail taxation burdens for foreign companies and citizens with abroad remittances. This has made UAE a friendly environment for investments and has attracted large numbers of investors. Apart from macroeconomics, taxation has a major role in microeconomics. It determines the living standards of people in a country. Take the UAE for example. This is a country where everyone’s living standards are considered high due to no taxation. Countries hard hit by heavy taxation usually have high living costs, making the standards of living be compromised. Taxation generally affects everything in the economy, from prices of commodities to income. Economic aspect such as industrial unrest and inflation are closely related to taxation. Areas with low taxation hardly experience inflation and industrial unrest because life is affordable. Likewise, people consider areas with unfavorable tax policies unpopular unless their income is relatively high. As mentioned above, the taxless regime in UAE has lured many investors and expatriates who had been avoiding taxes from their home countries. Most recently, there has been mixed feelings among these investors and expatriates following the announcement that the UAE in introducing value-added and corporate taxes in 2015. It is till unclear how corporate taxes will be implemented in the country, based on the presence of 38 free zones in UAE. These zones have isolated regulation frameworks with special imports, customs and special taxes. Additionally, most companies existing in UAE have been issued long term guarantees against establishment of corporate taxes upon registration in the free zones. The international monetary fund has had a significant input in the introduction of these taxes in UAE. The body has recommended the review in taxation for UAE following the recently wakening fiscal position of the country as a result of fluctuating oil prices in the global market. Oil and custom duties are the main revenue generators for UAE. IMF, in the 2015 report, projected that UAE will gain an additional 4.1 percent revenue from a 15% tax on public service vehicles. A 5% value-added tax and broader corporate tax system will also boost the revenue of the economy. A new tax system is set to reinforce the current 10% on hotels, 5% property tax and 20% on foreign banks. However, the investors in UAE should not be discouraged to make short-term goals for their businesses. Formulation of a tax system can be time consuming, reflecting that it will not be in operation for the next few years. UAE also has strong external and fiscal buffers, which are protecting the economy from experiencing negative spillovers caused by the fluctuating oil prices globally. 2.0 Research Question The research question that the study at hand seeks to address is, ‘What effective marginal tax rate and what the importance of putting tax rates are?’ Additionally, this research will go ahead and find answers to the following highlighted sub-questions; i. What differences exist between marginal tax rate and effective tax rate? ii. How do tax rates affect the economy? 3.0 Literature Review 3.1 The Difference between Effective Marginal Tax and Effective Taxes Rates According to Michael Kitces (2013), people do not understand the difference between marginal tax and effective tax. These two terms, which are used to refer to tax rates, give different definitions of deductions that are made on income. Effective marginal income refers to the increase in taxation, deduction and other abatement benefits that one is entitled to after an increase in a unit amount of income. In short, it is the extra deductions that a person is supposed to pay for earning an extra dollar. Many countries have established tax systems that group people I different tax brackets. Therefore, income earned is taxed according to the taxation bracket on occupies. Alesina and Ardagna (2010, p 35-6)illustrate that an increase in the income means one jumps from one tax bracket to the other. However, it does not mean that if the increment puts the individual’s whole income into the new tax bracket. It simply means that the extra income is taxed according to the new tax bracket. Take for instance a retired person who is in the 28% tax bracket the following year. He takes an IRA withdrawal for another $1,000 of income for the following year, making him incur an additional $280 of taxes because of the 28% tax bracket he initially occupied. If the individual is in the 33% tax bracket this year, it means the IRA withdrawal during the year will lead to a tax liability of $330, considering he is in the 33% tax bracket. Therefore, the client will be subject to a 28% marginal tax rate the following year, which is $280 of taxes divided by $1,000 of income in addition to the 33% marginal tax rate he is on this year. This means that the individual can decide that, at the margin, taking that $1,000 IRA withdrawal the following year is better because he will incur less tax. According to Stuart Allen, Geetha Vaidyanathan, Jeffrey Sarbaum (2007), effective marginal tax rates affect different strategies employed by individuals and organizations on financial matters. It determines the preference of a strategy or scenario A to strategy or scenario B. According to Roberton Williams of Forbes (2012), marginal tax rates matter most for both domestic and commerce financial decisions. It plays an important role in determining whether to sell stocks after a rise in their value, whether to give money to charity, whether to push for more investments that would earn extra income or whether to do extra work in general. It gives a reflection of the benefits that would be yielded for pushing for more gains in that, if the a big part of the extra income is consumed by tax, then the extra effort of investing is not necessary. Effective tax rate, on the other hand, is the average tax a person owes the tax authorities after earning a specified amount of income. Generally, it is the average tax a person pays per each dollar. According to Kitces (2013), effective tax rates are used to measure the relative tax obligation of different people. It is used to measure the proportion of people’s income that is dedicated to paying tax. Therefore, it is a measure that compares individuals and not strategies, unlike marginal tax rates. The author points out that in the last general elections debates, the effective tax rates of Mitt Romney and Billionaire Warren Buffet were compared. Although the latter seemed to have contributed a lot of money to taxation, Gov. Romney has a higher tax obligation due to his effective tax rate. However, some analysts have argues that this measure is still a relative measure. This is because as much as Mitt Romney dedicated ahigher percentage of his income to tax, making him the better citizen, Mr. Buffet still had the commanding say because of the enormous amount of money he contributes to taxation, although not as much as Mr. Romney’s in terms of percentages. Calculating an individual’s effective tax is simply taking their total income and dividing it by the total tax paid. For instance, assuming an individual has $200,000 of total income, and $30,000 is their total deductions, their taxable income will be $170,000. The 2012 tax tables direct that their total tax liability is $35,379. This is tax calculated on their income, which falls across the 10%, 15%, 25%, and 28% brackets. Therefore, the individual’s effective tax rate is $35,379, their total taxes, divided by $200,000, which is their total income. This comes to approximately 17.7%. Therefore, 17.7% of their income is taken up by the tax. 3.2 What is the Importance of Putting Tax Rates? As noted earlier, most actions of economic entities are influenced greatly by taxes. Investors will always want to invest in areas where the local tax laws favor their investment and returns. People tend to shy always from areas with high taxation rates; with those with lower rates, attracting more investors. High taxation affects the cost of doing businesses, therefore affecting the returns on the investment. Counties that have been establishing high tax rates have been experiencing a slowdown in economic development compared to countries with favorable tax rates such as UAE. According to Alan Reynolds (1998), during the 1980s, most countries adopted policies that led to low taxes on income. This spurred massive investment in the major economies, which led to massive industrial development. However, the author notes that during the 1990s, major economies in the world started raising taxes on income and payroll. He notes that one of the columnists of the Financial Times once said that the name of the game in that era was raising taxes. Arnold et al. (2011) agree that under the leadership of George Bush, Chancellor Helmut Kohl and Prime Minister Brian Mulroney, major economies in the world such as the US, Germany and Canada raised taxes. For Bush’s part, it might be understood that raising tax was a way of countering the falling value of the dollar and the massive economic strains caused by the Gulf war. An endless series of Japanese prime ministers also put into effect tax raises that ultimately led to their exit from office. However, leaders of some fastest developing economies in Africa, Asia and South America such as, Bolivia, Mauritius, South Korea, Singapore, Hong Kong, Brazil, Chile, Colombia, India, Argentina, Mexico, Malaysia, New Zealand and Botswana did not heed this call and continued pushing for lower tax rates. During this time when the G-7 member steeped their taxes, their economic growth started slowing from an average of 2.9% to an average of 1.7% by 1996. This showed how the high taxes would affect their economies in the long run. Reaganomics Geoffrey Michael (2011) pointed out that one of the major campaign agendas run by the former US president, Ronald Reagan, was to reduce taxes. According to Reagan, oppressive tax rates and a big government hindered the US economic growth. His idea was to reduce taxes by 30%, concentrating most of it in the high-income bracket in order to promote growth. Initially, this strategy was called the trickle-down or supply-side economics, which the media dubbed Reaganomics later when it was put in place. According to him, the lower tax rates would spur investment by allowing the high-income individuals to spend more on investment, which would create more jobs eventually. According to him, more jobs meant more tax collection in the long run, which would translate into more government revenue. Initially, during the implementation of Reaganomics, inflation heightened leading to the Federal Reserves’ decision to increase interest rates. However, after the inflation was brought under control and the interest rates reduced after two years, 21 million jobs were created, proving the president right that lower taxes would create more jobs. During this period, the GDP and tax revenues rose by an impressive 7%. The tax policy introduced by President Bill Clinton offered an insight into the effect of both increasing and decreasing tax rates. The Omnibus Budget Reconciliation Act, passed in 1993, touched on a number of tax increases. It led to hiking of the top income tax rate up to 36%, with the highest earners receiving an additional 10% in income tax rates. Income cap on Medicare taxes was removed under Bill Clinton, with further phasing out of certain itemized exemptions and deductions and increasing the Social Security taxable amount. The Act also established a move to raise the corporate rate, putting it at 35%. The next four years of Clinton’s term saw the economy adding 11.6 million more jobs. However, average hourly wages increased by a paltry 5 cents for each hour. The stock market skyrocketed, allowing the S&P 500 index to rise to about 78% after the adjustment of the inflation. In 1994, the Republicans led by Newt Gingrich wrested and gained control of the House of Representatives, allowing them to run on a platform called the Contract with America. The platform provided for commitments in reducing taxes, reforming the welfare system and shrinking the federal government. This move enabled unemployment to drop to only 5.3% making the Republicans pass the Taxpayer Relief Act, which was signed by the President after a lot of resistance from the Democrats and the President himself. This Act reduced the top capital gains rate from 28 to 20%. It also established a $500 child tax credit, exempting married couples from $500,000 of capital gained from the sale of their primary residence. The Act also led to a rise in the estate tax exemption, which was at $600,000 to $1 million. It also established Roth IRAs and Education IRAs, raising the income limits for IRAs that are deductible. Clinton's first term was characterized by a rise in revenues 7.4% per year after tax reduction. Nevertheless, the GDP rose 5.6% per year, and the national debt increased $730 billion. He second term saw tax cuts and revenues rising 8.7% per annum, GDP rising 5.7% per annum, and the national debt being cut by $409 billion. This information shows that tax cuts were good for the American economy, despite his second term being aided by the technology boom that resulted in the creation of many additional jobs. This is just a small illustration of how high taxes can affect the productivity and eventually the economy of a country. It is a clear explanation of the need to reduce high tax rates in order to realize massive and significant economic gains because the bottom-line is, increased tax lead to individuals’ change of habit to reduce their vulnerability to taxes and deductions. It indicates that the best way to jump-start revenues is not by increasing taxes in order to cut the national debt, but to facilitate economic growth through stimulating tax policies The Abu Dhabi decree of 1965 allowed no individual in the United Arab Emirates to be subjected to income tax. According to Emirates 24/7 New (2015, n.p), the zero tax policy has attracted many professionals from all over the world to the UAE. A research by this institution has showed that Western countries have the heaviest tax burdens with Franc and Germany occupying the top positions. According to Robert Carroll (2009, n.p), high taxes discourage entrepreneurship, work and saving. Most people in the highly taxed countries are coming up with new ways of ensuring that they pay fewer taxes. This has affected tax remittance because people are trying as much as possible to avoid paying a lot of tax. Countries with high taxation have seen a fall in foreign investment due to the high cost of doing business in the areas. Therefore, this has led to increased cost of commodities due to the high taxation. High tax rates encourage taxpayers to rearrange their tax affairs in order to receive more of their compensation in ways that will attract a lesser tax burden. They take greater advantage of the countless numbers of tax preferences in today's tax code. For instance, taxpayers prefer reducing their tax bill by financing more home purchases, receiving a greater portion of their compensation in tax-free fringe benefits, or rebalancing their investment portfolios in order to achieve tax-exemption when dealing with local government and state bonds. High tax rates dictate that people have to work extra hard in order to earn more according to Feldstein (2008, p4). Sometimes, the effort put in the extra work does not match the benefits accrued after taxes. Take for example the French football. Professional players are very reluctant to play in the French Ligue 1 because of the high taxes. According to Robert W. Wood (2013), professional footballer and celebrities are eyeing their exit from the French market due to the court’s decision to uphold the 75% tax policy. This has led to the recent deterioration of the French Ligue 1 due to low-quality players, most of whom are drawn from the second tier leagues of Africa. The competitiveness of the French soccer teams in the continental competitions such as UEFA Champions league and the Europa league could have been very low. This could be attributed to the high tax rates that discourage players from playing in the country. According to the author, soccer playersare not the only people affected by the tax policy as the French actor,Gerard Depardieu, wentto the extent of changing his citizenship to Russia, much to the delight of the Russian leader Vladimir Putin. Although the authorities have called this move pathetic and patriotic, the actor was quoted saying, “I hand over my passport to you and my social security card, which I have never used.” Adding to their misery is France’s wealthiest person Bernard Arnault, who also applied for Belgian citizenship (Wood, 2013, n.p). This is a contrasting scenario when you look at the UAE where doing business has never been this better. With the high infrastructural development and a favorable taxation policy, the UAE is one of the favorite destinations for top technocrats worldwide. Many people have resorted to working in the country, with literature showing that Indians are among the people who are benefiting most from the zero taxation policy. Foreigners are free to own businesses in the country with no need of securing a local partner. Dubai Multi Commodities Center (DMCC) is one of the 30 free zones set up by the government of UAE. In addition to the favorable tax environment, the free zones provide no personal income tax rate, 0% corporate income tax rate, 0% withholding tax rate and no currency restrictions in addition to 100% full capital repatriation. Additional benefits include the government making it possible for 100% foreign business ownership. Companies that are situated in these Free Zones can have one or multiple shareholder according to their preference or size. The location of these free zones is prime, with easy accessibility to Dubai and Abu Dhabi leading airports and location on the Sheikh Zayed Road, which is already a prime area. There is independent free zone authority, well-developed infrastructure, security and appropriate business regulations, making it one of the most favorable business environments. The zero taxation policy has made it secure to do business and live in UAE. There are low levels of corruption and the general society morals are high because of the high living standards. The fact that there is low corruption and zero tolerance for corruption, not only makes it a favorable business environment but also builds a culture of development based on honesty and actual hard work. According to Adam Bouyamourn (2014), the Transparency International ranked UAE among the least corrupt Arab nations. Part of the reason is due to the favorable tax rates, which has promoted high standards of living and general empowerment. The country is in the process of establishing an anti-corruption commission that will deal with few cases of corruption majorly observed on foreign businesspeople according to the perceptions of think tanks, non-governmental organizations, research firms and the international financial leaders such as the World Bank. 4.0 Methodology This section encompasses the research design as well as the methods applied in the collection of data about the importance of different tax rates to the economy of different countries and the difference between countries with taxes and those without. Additionally ethical consideration in the selection of the material and sources is highlighted. To address the research problem, this study will employ a mixed approach, which involves making use of both the qualitative as well as quantitative methods. A qualitative approach usually employs the use of a number of interpretative techniques, which normally come in handy especially when describing, decoding as well as interpreting issues related to the research problem (Merriam 2009, Klenke, 2008). On the flipside, a quantitative approach normally bases its analysis on the measurement of data presented in numerical forms as well as quantifying any existing relationships between given variables (Muijs, 2010).The benefit accrued from the utilization of both qualitative and quantitative research designs is that it will help the researcher in question to obtain data that is more accurate and in-depth as opposed to if the stated approaches could be utilized single-handedly. Additionally, since each approach presents its limitations when used alone, this mixed approach will help to address those limitations of each approach. It is also vital to note that the quantitative approach is usually objective, very reliable as well as structured. However, this approach possesses limitations of being over-systematic as well as sometimes missing on the validity. On the other hand, quantitative design normally involves the survey of large groups of people or population with the use of given structured questionnaires. It usually arranges the research question earlier and also presents detailed data collection methods that will be used as well as analytical tools and procedures. Content analysis is a technique that will be utilized in the review and analysis of the various materials that are published. It will study the information presented in the various pieces of empirical and theoretical literature with a goal of obtaining the information of interest to the research topic. In this light, this method will be used to collect and review information from books, journals, websites, articles as well as published official reports. The benefit that comes along with the use of this method is that it is cost-effective as it only involves the collection of information from sources that have already been published. 5.0 Research Ethics Broom (2006, p. 151) opines that any research carried out should adhere to the various set or prescribed ethical standards. This is because the adherence to the standards ensures the protection of both the researchers as well as the participants involved. Additionally, it ensures that high-quality data is retrieved and that in thecase of any future studies carried out within the focus group or community, there is cooperation and willingness to participate in the process of providing the required data. Resnick (2011, p. 22) postulates that it is always vital for any research studies to adhere strictly to the prescribed ethical norms of any community because they always play a significant role in the promotion of a given study’s objective. Such important ethical norms include honesty, upholding utmost confidentiality, non-discrimination as well as the provision of the necessary protection for the participants of the study. 6.0 Limitation 6.1 Accessibility of Data Acquiring data is an imperative step for any research. Getting such data that is attuned to the research topic is not an easy approach. Throughout the research gaining data on taxation, notably in UIAE was a challenging tasks given the limited information available. Whereas some publications can be easily found on online sources; most or all of the information available were insufficient enough to create a strong paper to make the arguments. Access to government information regarding taxation can be problematic since they are not readily available for the general public's scrutiny. 6.2 Inadequate Time Given the limited time for the research, it was impossible for the researchers to get accurate information regarding the viability of information from divergent perspective. Arguably, an in-depth analysis necessitates for ample time to conduct all the necessary research pertaining to the research topic. Enough time for research implies that the researchers are able to mobilise individuals within the field to gain an in-depth understanding of actual facts within the field. Additionally, securing ample time to conduct the interviews was not easy given that most of the interview process are time consuming and necessitates the need to have a large resource for such practices. Lacking such people may render the research work inefficient and not preferred. On the other hand, mobilizing people for the research work was challenging given that accessing such individuals is problematic. 6.3 Information Sensitivity Data concerning a country's monetary and taxation approaches was a major problem. The access of such information requires the need to scrutinise government records that cannot be easily accessed to the general public due to the senility of such information. Protection of such information is vital for preservation of a country's integrity. It is from such sensitive information that accurate data can be obtained from the field in support of the research. 6.4 Existing Gap Between Theory and Actual Research Existing literature does not extensively cover all the aspects associated with the research topic. Arguably, there are divergent aspects that have not been covered by existing literature in complementing the aspects of taxation. Having a lot of research on this topic will significantly improve the way the research is conducted, to name a few. 7.0 Conclusion Taxation has a huge bearing on the performance of the economy. The current US government under Barack Obama has pushed consistently for higher taxes on the people occupying the high tax brackets arguing that this will help to reduce the deficit. However, the debate persists as to whether higher rates can result in more revenues or not. The problem is that changes in the tax burden usually forces people to change their economic behavior in order to avoid dedicating a lot of their income on taxes. Visibility of Incorporating VAT in UAE The introduction of the VAT systems in the UAE may heighten the impact of low oil pricing, however it could substantially reduce the competitiveness of the economies within the GCC, notably in UAE. Unfortunately, whereas the incorporation of VAT will broaden revenues, it will reduce the competitiveness of countries within the UAE. Economist argues that the introduction of VAT systems, various rates can be collected in various sections (Maceda, 2015). Challenges TAX reforms have a high propensity of stirring public dissent in certain countries within the UAE. Public dissatisfaction may be unpleasant given the public uproar on such reforms. Whereas talks for such an introduction have been done it is significantly hard for the citizens to accept such changes. The introduction of these systems would mean that the country’s competitiveness will significantly reduced given that I the cost of trading in the UAE will present increased cost to name a few. A reduced competitiveness would imply that the UAE would not be a preferred business destination for potential investment from foreign investors. Whereas the implementation of VAT has presented divergent challenges, Ramey (2011, p673-685) agrees that a change in the tax policy can improve the economy. Countries like UAE have shown the world that high taxes are not necessarily the only way to increasing revenue, but a well-planned stimulating tax policy that will encourage investment, working and entrepreneurship. References Alesina, A., & Ardagna, S. (2010). Large changes in fiscal policy: taxes versus spending. In Tax Policy and the Economy, Volume 24 (pp. 35-68). The University of Chicago Press. Arnold, J. M., Brys, B., Heady, C., Johansson, Å., Schwellnus, C., & Vartia, L. (2011). Tax Policy for Economic Recovery and Growth*. The Economic Journal, 121(550), F59-F80. Arulampalam, W., Devereux, M. P., & Maffini, G. (2012). The direct incidence of corporate income tax on wages. European Economic Review, 56(6), 1038-1054. Bouyamourn, A. (2014). UAE ranked least corrupt nation in theArab world by Transparency International. The National Busines. Broom, A. 2006. Ethical issues in social research. Complementary therapies in medicine, 14(2), pp.151--156. Carroll, R. (2009). The Economic Cost of High Tax Rates. Tax Foundation. De Hoon. (2015). Doing Business in Dubai: No More Taxes. Dyreng, S. D., Hanlon, M., & Maydew, E. L. (2010). The effects of executives on corporate tax avoidance. The Accounting Review, 85(4), 1163-1189. Easterly, W., & Rebelo, S. (1993). Fiscal policy and economic growth. Journal of monetary economics, 32(3), 417-458. Feldstein, M., S. (2008). Effects of Taxes on Economic Behavior. NBER Working Paper Series. Golladay, F. L., & Haveman, R. H. (2013). The economic impacts of tax—transfer policy: Regional and distributional effects. Elsevier. Hungerford, T. L. (2012). Taxes and the economy: An economic analysis of the top tax rates since 1945 (updated). Kitces, M. (2013). Understanding Marginal Tax Rate Vs Effective Tax Rate And When To Use Each. Nerd’s Eye View. Maceda, C. (2015). How VAT can affect UAE competitiveness Gulf News Economy Analyst tackles other negative effects of value-added tax Merriman, B., & Merriman, B. (2010). Genealogical standards of evidence. Toronto: Ontario Genealogical Society. Mertens, K., & Ravn, M. O. (2013). The dynamic effects of personal and corporate income tax changes in the United States. The American Economic Review, 103(4), 1212-1247. Michael, G. (2011). How Taxes Affect The Economy. Investopedia. Muijs, D. (2004). Doing quantitative research in education with SPSS. London: SAGE. Ramey, V. A. (2011). Can government purchases stimulate the economy?. Journal of Economic Literature, 49(3), 673-685. Resnik, D. and others, 2010). What is ethics in research & why is it important. Research Triangle Park, North Carolina: National Institute of Environmental Health Sciences/National Institute of Health. Reynolds, A. (1998). The International Importance of Low Tax Rates. National Center for Policy Analysis. 283. Robson, C. (2007). How to do a research project. Malden, MA: Blackwell Pub. Salanie, B. (2011). The economics of taxation. MIT press. Spier, P. (2010). Effective marginal tax rates for working for Families recipients. Changing Families’ Financial Support and Incentives for Working. Stuart, A., Geetha, V., & Jeffrey, S. (2007). Introducing the Effective Marginal Tax Rate in Introductory Macroeconomics. JOURNAL OF ECONOMICS AND FINANCE EDUCATION. 6(1). Williams, R. (2012). Marginal Tax Rates Matter More Than Average Tax Rates. Forbes. Wood, R. W. (2013). Top French Court Upholds 75% Tax While Footballers Eye Exit. Forbes. APPENDICES The following are the questions contained in the questionnaire: 1. What is your age? 2. What is your gender? 3. How much do you earn in a year? 4. Do you understand the term effective tax rates? 5. Do you understand the term marginal tax rates? 6. Do you know the importance of effective marginal and marginal tax rates? 7. On a scale of 1 to 5 where 1 is poor, 2 is fair, 3 is good, 4 is very good and 5 is excellent, how can you rate the taxation system in the country? 8. Do you think tax cuts can promote economic growth? 9. What is your view on the current tax policy in the USA? 10. What do you think of countries that have low or zero takes rates such as UAE? Retrieved from: http://taxfoundation.org/article/us-corporate-taxation-prime-reform Retrieved from: https://www.aei.org/publication/why-we-cant-go-back-to-sky-high-1950s-tax-rates/ Read More