Assignment 1: Should the U.S. Convert to a Zero Personal Income Tax?
ACC 307 Federal Taxation
August 18, 2018
The United Arab Emirates is among the country which has zero income tax rate such that both the locals and expatriates do not incur any income or sales taxes. However, the country generates its income through some form of the company’s taxation. First, the state has the corporate tax for the foreign companies which operate within the country. This process includes the different gas or oil producing companies which works in the country. The tax rates range from 55%-85% depending on the agreement of the company and the emirate in which the company will be operating in (Bronori, 2007). The foreign banks which have their branches within the emirate are subject to corporate taxes which are 20% of their taxable income.
They are other indirect taxes which individuals who live there have to pay on a regular basis. There is 10% of the municipal fee which will pay for entertainment and hotel revenues. Whenever someone visits a hotel 10% is added to his or her bill. Alcohol is also heavily taxed such that someone has to pay 50% to import alcohol into the country and 30% to purchase it hence most people end up acquiring it illegally (Feethman, 2011). This country has the most expensive fines system which is considered to be very efficient. Traffic cameras are put everywhere on the roads to track those people who violate the traffic rules. Most people there like to drive fast and hence the more fines they get to pay to the government.
Also, those people who extend their stay past the expiry dates of their resident visa will potentially have to pay hefty fines. The government generates income through those people who want to acquire business and government services such as business licenses to carry out business. To purchase a business license can cost a thousand dollars which is the same case as renewing it. Well, getting government services is considered to be very expensive such that even a mere stamp on a paper costs an absurd amount of money.
Personal income can be described as the tax which is imposed on any entity which generates financial income by the government. These entities include a person, corporation, estates, etc. Over the past decades, the U.S. generated its income through taxes gained from alcohol, slaves, corporate bonds, refined sugar, unlike now that there are hefty taxes on personal incomes (Pratt, 2011). The taxation process was as a result of the war which took place in 1812 because the whole process affected the economy significantly.
Henceforth the U.S. government has relied on all these personal income taxes to finance its expenditures and expenses. Well, most of its citizens feel that the allocation of the burden is not equal and it should be no longer used. I believe that the U.S. should adopt the zero-tax income level and focus on taxes of other entities such as corporate tax, business taxes, etc. The cost of livelihood has become prohibitive, and people in the middle class find it very hard to sustain their lifestyles. Therefore, the government should focus on other entities where they can generate their income and support the citizens without taxing their income.
They are advantages and disadvantages that will result in the U.S. adopting a zero-income-tax rate. Having a zero-income-tax rate will make the citizens save the money they could have spent on tax and this will, in turn, lead to more capital formation and boost the level of the economy (Zodrow, 2008). The low-income earners hardly have money to save because the tax rate is high and they spend more on taxes than savings. Through adopting a zero-income-tax standard, the IRS audits reduce for both the individuals and businesses. If the individuals do not pay income tax, then the government will incur hefty charges on other entities such as businesses, corporations, etc. Starting a business will become difficult for people who want to get into this venture. Adopting a zero-income-tax rate, it means that some taxpayers will never pay tax hence general tax revenues will become low.
They are ways in which the federal government can make money in case it shortfalls of the income level. Expatriates who get to work in the country should find ways to generate revenue through paying work-permit fees. Tourism also should generate income for the government. Some of the income taxpayers should be exempted from tax burden and enhance equity sharing mostly with the less privileged taxpayers. The government should impose a tax on other entities such as entertainment, alcohol, hotel accommodation for foreigners so that it can generate more revenue in case it does not make money from income taxes.
Also, the government can generate revenue by imposing high taxes on lawbreakers such as those who do not follow traffic laws, those caught selling drugs and illegal products. The government can also make for its shortfalls through improving its tax collection methods (Bronori, 2007). This can be implemented through a high- structured variable tax rate. Some entities such as state budget expenditure should be minimized. There will need to lay out a well-structured plan for inflation which might affect other areas of the tax code because increase results to deductions and having income tax brackets.
The most significant way in which the U.S. Department of the Treasury, through the IRS, can still adhere to its fiscal and monetary policies is through establishing coordination between monetary and fiscal policies so that there can be better functioning of the economy (Zodrow, 2008). Also, through managing the public tax debt policy well to maintain the interest costs and other refinancing risks like tax exceptions.
Bronori, D. (2007). Local tax policy : a federalist perspective. Washington, D.C.: Urban Institute Press.
Feethman, N. (2011). Tax arbitrage : the trawling of the international tax system. London: Spiramus Press.
Pratt, J. (2011). Financial accounting in an economic context. New Jersey: Wiley.
Zodrow, G. R. (2008). United States tax reform in the 21st century. Cambridge: Cambridge University Press.