Designing a Work-Friendly Tax System

[Excerpt] Taxes tend to influence individual choices between labor and leisure, and high effective marginal tax rates on earned income tend to discourage work. In particular, the empirical evidence shows that high effective marginal tax rates tend to discourage work by low- and moderate-income individuals, especially those that are trying to work their way out of the welfare system. Unfortunately, the current federal tax system often imposes its highest effective marginal tax rates on just those individuals. The purpose of this paper is to suggest some simple ways to reduce those high effective marginal tax rates. One approach would be to replace the current earned income tax credit with a $2,000 per worker credit and a refundable$1,000 per child tax credit. A more comprehensive approach would be to integrate the individual income tax and Social Security tax systems into a single, comprehensive income tax system with refundable $2,000 per worker earned income tax credits and with$1,000 or $2,000 per person refundable personal tax credits or demogrants. In short, this paper considers how to make the federal tax system more work-friendly for low- and moderate-income workers

The Corporate Income Tax System: Overview and Options for Reform

The corporate income tax system has been a focus of many recent debates about tax reform and the economy. Many economists and policy makers argue that reform of the corporate income tax system is needed, although a variety of rationales on why and how have been offered. Some argue that a simpler system with lower tax rates is necessary to encourage domestic investment, employment, and economic growth. Others argue that reform is needed to close loopholes and restrict access to tax havens, both of which are seen by some to allow corporations to avoid taxes too easily. A number of others have advocated for corporate tax reform on the basis that the current system puts American corporations at a disadvantage when compared with foreign competitors. Many believe it is a combination of these arguments that justify reforming the corporate tax system. This report presents information and research on the corporate tax to help policy makers understand and evaluate arguments presented in the tax reform debate. Many of the topics and ideas discussed here are analyzed in greater detail in the other CRS reports and academic research referenced throughout. This report first reviews the structure of the corporate income tax. Data on which companies pay the corporate tax, corporate tax revenue, and how the U.S. system compares to the rest of the world are then presented and analyzed. Next, the economic effects of the corporate tax are reviewed—including a discussion of the purpose of the corporate tax, who bears the burden of the tax, and how to evaluate alternative corporate tax systems. The report then reviews broad reform options and concludes with a comparison of specific proposals that have been offered

Tax system and tax reforms in India

This paper is part of a wider research on South-East Asia countries' taxation carried on under the supervision of. V. Tanzi. India is a federal republic and a big, highly populated and poor country, which however since some years has entered the catching up stage of development and shows impressive rates of GDP growth. General Government budget is structurally imbalanced and public debt stays high. Public spending (about 25 percent of GDP) is mainly devoted to general services, defense, and the support of economic activities, rather than to public health and welfare programs. Total fiscal pressure (about 17 percent of GDP) is in line with per capita GDP and is shared evenly enough between central and states governments. The structure of the tax system is not much beyond the Musgravian "early stage". A complex structure of taxes on goods and services is largely the main heading of the tax system and it is difficultly moving towards a VAT-kind structure. Direct taxes still are in an infant state, both as weight as well as structure. Import duties remain at not negligible levels. Social contributions are entirely lacking. A tax system of a country like India unavoidably raises more than one problem: foremost among these problems appear to be a too large dominance of a complex and obsolete indirect taxation and the fiscal relations among government layers. The road to updating and improving the Indian tax system has been entered since the early 1990s, but the reform is still largely to be accomplished. Introducing VAT ( so successfully adopted in other developing countries ) is the most striking but not the only example.

Generalized Cash Flow Taxation

We show the unique form that must be taken by a tax system based entirely on realization accounting to implement a uniform capital income tax, or, equivalently, a uniform wealth tax. This system combines elements of an accrual based capital income tax and a traditional cashflow tax, having many of the attributes of the latter while still imposing a tax burden on marginal capital income. Like the traditional cash-flow tax, this system may be integrated with a tax on labor income. We also show how such a tax can be supplemented with an optional accounting for a segregated subset of actively traded securities, subjected separately to mark-to-market taxation at the uniform capital income tax rate, to permit a fully graduated tax system applicable to labor income.

On the optimal progressivity of the income tax code

This paper computes the optimal progressivity of the income tax code in a dynamic general equilibrium model with household heterogeneity in which uninsurable labor productivity risk gives rise to a nontrivial income and wealth distribution. A progressive tax system serves as a partial substitute for missing insurance markets and enhances an equal distribution of economic welfare. These beneficial effects of a progressive tax system have to be traded off against the efficiency loss arising from distorting endogenous labor supply and capital accumulation decisions. Using a utilitarian steady state social welfare criterion we find that the optimal US income tax is well approximated by a flat tax rate of 17:2% and a fixed deduction of about $9,400. The steady state welfare gains from a fundamental tax reform towards this tax system are equivalent to 1:7% higher consumption in each state of the world. An explicit computation of the transition path induced by a reform of the current towards the optimal tax system indicates that a majority of the population currently alive (roughly 62%) would experience welfare gains, suggesting that such fundamental income tax reform is not only desirable, but may also be politically feasible. JEL Klassifikation: E62, H21, H24

On Choosing a Flat-Rate Income Tax Schedule

This paper applies a numerical optimization technique using microunit tax data to the problem of choosing the parameters of a flat-rate tax system, should one be desired. Our approach is to first formulate explicit objectives that a flat-rate tax might reasonably be designed to meet, such as minimizing the extent of changes in households' tax burdens and minimizing the efficiency cost of the tax system. The next step uses an optimization algorithm to calculate the flat-rate schedule which comes closest to meeting the objectives,subject to the constraint that it raise the same revenue as the current incometax system. The calculations are carried out using a sample of 947 tax returns randomly drawn from the Treasury Tax File for 1977 which are updated to repro-duce the pattern of tax returns that would be filed in 1982.The analysis shows that the flat-rate system which minimizes the sum of the absolute deviations in tax liabilities features a marginal tax rate between 0.204 and 0.254, though a different definition of tax burden changes which puts more emphasis on reproducing the tax burdens of high-income households has an optimal marginal tax rate of 0.382. We also derive the optimal flat-rate schedules when another objective is to minimize the efficiency cost of the tax system.

A New Tax Framework: A Blueprint for Averting a Fiscal Crisis

This report presents fiscally responsible recommendations for overhauling the federal tax system and raising the revenues needed to combat mounting federal budget deficits and the fiscal demands presented by an aging society. The proposal calls for a new hybrid federal tax system featuring a phased-in 10 percent Value-Added Tax (VAT) to supplement a reformed and streamlined federal income tax. The report also provides guidance for eliminating, reducing and consolidating special tax preferences. In addition, the report calls for the elimination of the Alternative Minimum Tax (AMT) and reform of the Estate Tax

The Impact Factor of Costs to the Tax System

This paper is about the costs of the enterprises to the tax system. Thence, we have an analysis of the impact factor of the tax revenues of the countries subject to the costs of companies on the tax system. Thereupon from the view of the level of influence of the enterprises which participate in controlled transactions of transfer pricing to the global tax revenue, it is plausible to identify the impact factor of costs, when there exists that factor with the case which that factor is avoided. The impact factor of costs in combination with the tax revenues is determined through the Q.E. method and the R.B.Q. model. Inasmuch as, is defined as the behavior of the tax system subject to the capital of the tax system. Then a quantitative simulation is used as a methodology for this work, to define the impact of costs on the enterprises. Research paper Keywords: transfer pricing; costs; tax revenue; transactions Reference to this paper should be made as follows: Challoumis, C. (2020). The Impact Factor of Costs to the Tax System, Journal of Entrepreneurship, Business and Economics, 8(1), 1–14

Justice Holmes, Ralph Kramden, and the Civic Virtues of a Tax Return Filing Requirement

A major goal of some tax reform proponents is the elimination of the return filing requirement for many or all Americans. Although the President\u27s Advisory Panel on Federal Tax Reform heard several hours of testimony concerning the possibility of a return-free income tax system, the Report of the Panel failed even to discuss the issue. This Article contends that the Panel was right to recommend (by implication) the retention of a return-based tax system, given the Panel\u27s recommendations for major tax simplification. As long as the return filing obligation is not unduly burdensome which it would not be under the Panel\u27s simplification proposals a filing obligation has significant civic virtues. A return-based system represents an appropriate compromise on the level of visibility and painfulness of taxation, and the filing of an tax return can serve an important ceremonial function as an expression of fiscal citizenship. The civic potential of return filing is not now realized because of the tremendous complexity of the income tax, but that potential could be realized under a simplified system