Tax Policy Change - Case Study Example

Part 1

Introduction

Tax policy change is a vital economic problem that attracts advantages and disadvantages of equal measures. As much as this policy has social as well as economic advantages, it also has invariant disadvantages that also offer vital influence to the American economy. However, the problem as created by the tax policy change has some solutions that not only considers establishment of appropriate and effective source taxation system within America but also the state of taxation at source especially for employees share schemes (Black, 2016). Therefore, increased tax to the wealthy Americans increases support to the less fortunate through the funds remitted from the taxation programs on the wealthy group. On the other hand, tax policy change has high likelihood of exerting its effect to specific sectors of the economy. For instance, tax policy change can impose negative influences on the society such as decreasing consumer expenditure. Therefore, tax policy change involving heavy taxation on the wealthy America making surplus income is a problem that has solutions with advantages as well as disadvantages of equal measure hence its adoption is tricky to the U.S. economy.

Fig 1. Earnings from Different taxation units in the year 1999(Pollack, 2010).

A Problem Exists: Tax Policy Change

With president Obama’s campaign that created attention on the need to necessitate tax control on the wealthiest Americans, a possible solution to the tax change policy has erupted. This policy aims as increasing tax imposition on the Americans with an income of more than $250,000 per year. Presently, research reveals in variant issues in relation to this concern (Black, 2016). A complete understanding on income inequality is not only a significant but also the largest factor that creates a recognition to whether these extremely wealthy Americans should attract tax changes. Basing on the way inequality in income has become so substantial, many people could argue that the individuals in the top tiers of society have just worked harder or been more innovative (Inequality.org, 2016). On the other hand, an explanation that would be on consideration as more accurate would seem that the structure of the society has been in such a way that it has offered advantageous provisions to certain peoplethat has not fairly presented to the others. For example, the homosexual or people who suffer from depression may face unfair stigmatization in workplace environments (Black, 2016). The result in such environments is their endless relegation to the bottom-tiers of society, while other people remain able to capitalize on their marginalization and accumulate exorbitant wealth.

Figure 2. Gini coefficients of the final inequality in income as well as redistribution in the1990s (Pollack, 2010).

Another consideration regarding the take on whether tax policies should attract changes on the Americans making more than $250,000 per year is the recognition that trickle down economic theory has largely proven to be ineffective. This theory was proposed at the Reagan Administration with the understanding that through offering the people in higher income levels tax breaks, higher amounts of jobs would be created for working class Americans that otherwise wouldn’t be presented if the tax breaks were in a more equal distribution (Black, 2016). This policy has been tested and shown to be ineffective as a source noted that no co- relational relationship exists as amongst the top tax rate as well as the GDP growth rate. Moreover, statistical analysis offers renders a correlation coefficient of 0.003 between the two variables (Black, 2016). This shows that that there is essentially no connection. Therefore, these tax policies allow people making a substantial amount of wealth to continue with a ground on the outdated economic theory. Moreover, these tax policies in the United States support a virtual monopoly on prosperity through a privileged sect of the members of the society.

Additionally, another strong reason in support of the need for tax policies change on these extremely wealthy Americans is the strong moral as well as human rights concerning support to this policy.Research has shown that the happiness of an individual is directly proportional to the wealth until an upper limit of $75,000 per year(Black, 2016). Beyond this point, there is no substantial improvement in happiness (Trickle-Down Economics: Four Reasons Why It Just Doesn't Work, 2016). Therefore, the individuals making more than $250,000 per year receive wealth that has no benefit to their happiness in a similar way it would be beneficial to the happiness of people in lower economic classes. Such occurrences reflect the greed of these people and their willingness to take wealth away from people who need it simply as a means of consolidation of their power and control. This behavior is indicative of immorality and necessitates state intervention through wealth redistribution to prevent it from occurring.

Part 2

Solution and Advantages

The determination of possible solutions to America’s tax policy change not only considers establishment of appropriate and effective source taxation system within America but also the state of taxation at source especially for employees share schemes (Frank, 2016). Therefore, the primary solution involves increasing taxes on specific Americans especially the wealthy individuals earning more than the average citizen does (Black, 2016). Owing to the current income inequality facing the country, increasing taxes to Americans earning more would be vital in reducing this aspect of inequality. Income inequality has created both social discrimination and marginalization (Cordes, 205). Therefore, increasing taxation on high American earners would help curb such perceptions in the society. Moreover, the country would have an equitable society in which the margin between the poor and the rich would be significantly thin. This change in tax policy would be vital in enhancing not only a moral but also an equitable environment (Black, 2016). Consequently, the Americans would be living in a less greedy environment with equitable shares of resources. Moreover, the shared resources would be an induction to increased development across the country. The American environment would definitely extract significant benefit from such a change in the tax policy.

Figure 3: Differences in income between the wealthy Americans and the poor Americans in Billions of Dollars (Pollack, 2010).

A social advantage of increased tax to the wealthy Americans is the increased support to the less fortunate the funds remitted from the taxation programs on the wealthy group. Therefore, with increased tax imposition on the wealthy Americans, the additional revenue would be vital funds for other programs especially those involving the financially vulnerable within the society. Moreover, it would as well ensurea fair community where the public would equitably share wealth (Black, 2016). On the other hand, an economic advantage of this practice is the assurance of help in providing more revenue hence create a better society. Increasing tax is directly proportional to increasing revenue. Therefore, by actualizing the program Americans would eventually benefit from the increased revenues. Consequently, the automatic tax revenue increase would be an enhancer of public balance (Boadway, 2012). Moreover, there would be surplus generation. Additionally, an intentional tax policy change would ensure exertion of a strong impact on the innovation diffusion, a move that would be economically beneficial toAmerica. Besides, taxation offers remedies for unbalances between savings and aggregate investment (Boadway, 2012). Therefore, by imposing heavy taxation on the individuals generating surplus, the federal government would enhance GDP growth and modernization (Boadway, 2012). However, the opposite results would not only be attainable in specific business cycle conditions but also if public investment remains highly irrational (Boadway, 2012). Politically, this change in tax policy would help in paying for wasteful political expenditure. Reports indicate that America continues to suffer from unnecessary and wasteful political expenditure. Therefore, tax policy change would limit the consequences associated with such political practices.

Figure 2. Total U.S. tax revenues by component as a percentage of GDP (Pollack, 2010).

Part 3

Possible Disadvantages and Answers

Tax policy change is likely to affect specific sectors of the economy. In fact, the process is likely to suffer influence from invariant challenges as well as disadvantages. The change is likely to ascertain economical, political as well as social impacts (Pollack, 2010). For instance, tax policy change can impose negative influences on the society such as decreasing consumer expenditure. Taxation tend to draw away people’s earnings from consumers thus reducing disposable income. Therefore, the policy affects the social nature of people. Moreover, its limitation to thepublic activities means that the policy is less favorable. Economically, high taxes tend to inhibit the growth of the economy. At times, the government is compelled to institute tax cuts during economic hardships in attempts to encourage growth and spending (Pollack, 2010). Moreover, taxation is a deterrent to work since it reduces direct financial rewards. Besides, the policy solution can increase expenses faced by the business. Therefore, it remains difficult to achieve profitability. As much as this policy is vital in creating an equitable society, tax increase does not enhance equitability but marginalizes the society.

Conclusion

Tax policy change that involves heavy tax imposition to Americans with surplus income is a problem with solutions, advantages and disadvantages of equal measure. Therefore, its adoption is tricky to the U.S. economy as it can hardly make the situation of the economy better as opposed to the current state (Pollack, 2010). For instance, as much as increasing taxation on high American earners would help curb such discrimination as well as marginalization in the society, it can also draw away people’s earnings from consumers thus reducing disposable income.