Tax reform

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Tax reform is the process of changing the way taxes are collected or managed by the government and is usually undertaken to improve tax administration or to provide economic or social benefits. [1] Tax reform can include reducing the level of taxation of all people by the government, making the tax system more progressive or less progressive, or simplifying the tax system and making the system more understandable or more accountable.

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Numerous organizations have been set up to reform tax systems worldwide, often with the intent to reform income taxes or value added taxes into something considered more economically liberal. Other reforms propose tax systems that attempt to deal with externalities. Such reforms are sometimes proposed to be revenue-neutral, for example in revenue neutrality of the FairTax, meaning they ought not result in more tax or less being collected. [2] Georgism claims that various forms of land tax can both deal with externalities and improve productivity.

Australia

Tax reform is an increasingly significant issue on the Australian political agenda. [3] [4] Combined annual deficits of the Commonwealth and State and territory governments will rise from 1.9% of gross domestic product in 2011–12 to 5.9% of GDP by 2049–50. [5] Widespread, wholesale tax reform in Australia has not occurred since the introduction of the Goods and Services Tax in 2000. The Henry Tax Review identified 138 areas for significant reform to Australia's tax system over the next 10 to 20 years.

In July 2013, PricewaterhouseCoopers proposed significant tax reform in the context of an ageing population and slowing of the Australian mining boom. [6] PricewaterhouseCoopers proposed improving the efficiency of the Australian tax system through analysing the competitiveness of the levels of taxation, its effect on production and the importance of broad-based taxes to reduce economic distortion. [7] For example, over 115 other taxes raise less revenue than one tax: the Goods and Services Tax. [8] This report received widespread coverage in the Australian press. [9] [10] [11] [12]

United States

"'Revenue Reform' Train Stopped by 'Vested Interests,' 'Local Issues,' 'Trusts,' and other poles" -- Political cartoon from 1880-1900 commenting on tax reform. Revenuereform.jpg
"'Revenue Reform' Train Stopped by 'Vested Interests,' 'Local Issues,' 'Trusts,' and other poles" — Political cartoon from 1880–1900 commenting on tax reform.

There have been many movements in the United States to reform the collection and management of taxes.

During the late 19th century, American economist Henry George started a global movement for tax reform. The aim of the movement was the abolition of all forms of taxation other than the Single Tax on land value. The effects of the movement on taxation policy, although diminished, can be seen in many parts of the world including Australia, New Zealand, Hong Kong, Taiwan and Singapore.[ citation needed ] Efforts to promote this form of tax reform in the United States continue under the aegis of organizations such as The Henry George Foundation of America. [13]

In 1986, landmark tax reform was passed in the Tax Reform Act of 1986. In the 1990s, reform proposals arose over the double-taxation of corporate income, with a large report in 1992 by the Internal Revenue Service (IRS). [14]

During the Bush administration, the President's Advisory Panel for Federal Tax Reform recommended the removal of the Alternative Minimum Tax. Several organizations are working for tax reform in the United States including Americans for Tax Reform, Americans For Fair Taxation and Americans Standing for the Simplification of the Estate Tax (ASSET). Various proposals have been put forth for tax simplification in the United States, including the FairTax and various flat tax plans and bipartisan tax reform proposals. [15]

In 2010, Fareed Zakaria proposed what he described as a "grand bargain" with tax reform for economic adversaries Paul Krugman and Niall Ferguson; an attempt to bridge their political divide with the creation of a simple and indirect Federal Sales Tax. [16] Representative Chaka Fattah of Pennsylvania introduced a bill, H.R. 4646, [17] called the Debt Free America Act that would introduce a 1% financial transaction tax and eliminate federal income tax. He has introduced bills calling for similar tax reform since 2004, but the bills have never made it out of committee. [18]

President Obama's tax reform proposals are highlighted in his administration's 2013 United States federal budget proposal and in a framework for corporate and international tax reform presented by the administration. [19] While some of these proposals have become irrelevant due to the “United States fiscal cliff” agreement at the end of calendar year 2012, these policies present a center-left approach to tax reform. In general, the proposals involve some marginal tax rate increases, some marginal tax rate decreases, and base broadening by closing, canceling, or limiting tax loopholes, deductions, credits, or other tax expenditures for top income earners and corporations.

In December 2017, the Senate passed the Tax Cuts and Jobs Act of 2017. [20] On December 22, 2017 President Trump signed into law the tax reform bill passed by the House and Senate. [21]

The business community avidly lobbied in support of the bill, which included corporate tax cuts among more comprehensive reform. The National Retail Federation was a leading voice in this effort, since previously, retailers paid one of the highest corporate tax rates. [22] [23]

Tax choice

Tax choice is the theory that taxpayers should have more control with how their individual taxes are allocated. If taxpayers could choose which government organizations received their taxes, opportunity cost decisions would integrate their partial knowledge. [24] For example, a taxpayer who allocated more of his taxes on public education would have less to allocate on public healthcare. Supporters argue that allowing taxpayers to demonstrate their preferences would help ensure that the government succeeds at efficiently producing the public goods that taxpayers truly value. [25]

See also

Organizations
Proposals
Related concepts

Related Research Articles

Tax Compulsory charge imposed by government

A tax is a compulsory financial charge or some other type of levy imposed on a taxpayer by a governmental organization in order to fund government spending and various public expenditures, and tax compliance refers to policy actions and individual behaviour aimed at ensuring that taxpayers are paying the right amount of tax at the right time and securing the correct tax allowances and tax reliefs.

A flat tax is a tax with a single rate on the taxable amount, after accounting for any deductions or exemptions from the tax base. It is not necessarily a fully proportional tax. Implementations are often progressive due to exemptions, or regressive in case of a maximum taxable amount. There are various tax systems that are labeled "flat tax" even though they are significantly different. The defining characteristic is the existence of only one tax rate other than zero, as opposed to multiple non-zero rates that vary depending on the amount subject to taxation.

Tax avoidance is the legal usage of the tax regime in a single territory to one's own advantage to reduce the amount of tax that is payable by means that are within the law. A tax shelter is one type of tax avoidance, and tax havens are jurisdictions that facilitate reduced taxes.

FairTax was a single rate tax proposal in 2005, 2008 and 2009 in the United States that includes complete dismantling of the Internal Revenue Service. The proposal would eliminate all federal income taxes, payroll taxes, gift taxes, and estate taxes, replacing them with a single consumption tax on retail sales.

The Australian Taxation Office (ATO) is an Australian statutory agency and the principal revenue collection body for the Australian Government. The ATO has responsibility for administering the Australian federal taxation system, superannuation legislation, and other associated matters. Responsibility for the operations of the ATO are within the portfolio of the Treasurer of Australia and the Treasury.

A single tax is a system of taxation based mainly or exclusively on one tax, typically chosen for its special properties, often being a tax on land value. The idea of a single tax on land values was proposed independently by John Locke and Baruch Spinoza in the 17th century. The French physiocrats later coined the term impôt unique because of the unique characteristics of land and rent.

International taxation is the study or determination of tax on a person or business subject to the tax laws of different countries, or the international aspects of an individual country's tax laws as the case may be. Governments usually limit the scope of their income taxation in some manner territorially or provide for offsets to taxation relating to extraterritorial income. The manner of limitation generally takes the form of a territorial, residence-based, or exclusionary system. Some governments have attempted to mitigate the differing limitations of each of these three broad systems by enacting a hybrid system with characteristics of two or more.

Citizens for Tax Justice

Citizens for Tax Justice is a Washington, D.C.-based think tank and advocacy group founded in 1979 focusing on tax policies and their impact. CTJ's work focuses primarily on federal tax policy, but also analyzes state and local tax policies. Its stated mission is to "give ordinary people a greater voice in the development of tax laws." CTJ's goals include: "fair taxes for middle and low-income families; requiring the wealthy to pay their fair share; closing corporate tax loopholes; adequately funding important government services;[and promoting] taxation that minimizes distortion of economic markets."

Americans For Fair Taxation (AFFT), also known as FairTax.org, is a U.S. political advocacy group based in Clearwater, Florida that is dedicated to fundamental tax code replacement. It is made up of volunteers who are working to get the Fair Tax Act enacted in the United States – a plan to replace all federal payroll and income taxes with a national retail sales tax and monthly tax "prebate" to households of citizens and legal resident aliens.

The Russian Tax Code is the primary tax law for the Russian Federation. The Code was created, adopted and implemented in three stages.

The Fair Tax Act is a bill in the United States Congress for changing tax laws to replace the Internal Revenue Service (IRS) and all federal income taxes, payroll taxes, corporate taxes, capital gains taxes, gift taxes, and estate taxes with a national retail sales tax, to be levied once at the point of purchase on all new goods and services. The proposal also calls for a monthly payment to households of citizens and legal resident aliens as an advance rebate of tax on purchases up to the poverty level.

The Fair Tax Act is a bill in the United States Congress for changing tax laws to replace the Internal Revenue Service (IRS) and all federal income taxes, payroll taxes, corporate taxes, capital gains taxes, gift taxes, and estate taxes with a national retail sales tax, to be levied once at the point of purchase on all new goods and services. The proposal also calls for a monthly payment to households of citizens and legal resident aliens as an advance rebate of tax on purchases up to the poverty level. The impact of the FairTax on the distribution of the tax burden is a point of dispute. The plan's supporters argue that it would decrease tax burdens, broaden the tax base, be progressive, increase purchasing power, and tax wealth, while opponents argue that a national sales tax would be inherently regressive and would decrease tax burdens paid by high-income individuals.

Optimal tax theory or the theory of optimal taxation is the study of designing and implementing a tax that maximises a social welfare function subject to economic constraints. The social welfare function used is typically a function of individuals' utilities, most commonly some form of utilitarian function, so the tax system is chosen to maximise the aggregate of individual utilities. Tax revenue is required to fund the provision of public goods and other government services, as well as for redistribution from rich to poor individuals. However, most taxes distort individual behavior, because the activity that is taxed becomes relatively less desirable; for instance, taxes on labour income reduce the incentive to work. The optimization problem involves minimizing the distortions caused by taxation, while achieving desired levels of redistribution and revenue. Some taxes are thought to be less distorting, such as lump-sum taxes and Pigouvian taxes, where the market consumption of a good is inefficient and a tax brings consumption closer to the efficient level.

The Fair Tax Act is a bill in the United States Congress for changing tax laws to replace the Internal Revenue Service (IRS) and all federal income taxes, payroll taxes, corporate taxes, capital gains taxes, gift taxes, and estate taxes with a national retail sales tax, to be levied once at the point of purchase on all new goods and services. The proposal also calls for a monthly payment to households of citizens and legal resident aliens as an advance rebate of tax on purchases up to the poverty level.

The Automated Payment Transaction (APT) tax is a small, uniform tax on all economic transactions, which would involve simplification, base broadening, reductions in marginal tax rates, the elimination of tax and information returns and the automatic collection of tax revenues at the payment source. This proposal is to replace all United States taxes with a single tax on every transaction in the economy. The APT approach would extend the tax base from income, consumption and wealth to all transactions. Proponents regard it as a revenue neutral transactions tax, whose tax base is primarily made up of financial transactions. It is based on the fundamental view of taxation as a "public brokerage fee accessed by the government to pay for the provision of the monetary, legal and political institutions that protect private property rights and facilitate market trade and commerce." The APT tax extends the tax reform ideas of John Maynard Keynes, James Tobin and Lawrence Summers, to their logical conclusion, namely to tax the broadest possible tax base at the lowest possible tax rate. The goal is to significantly improve economic efficiency, enhance stability in financial markets, and reduce to a minimum the costs of tax administration.

The Competitive Tax Plan is an approach to taxation, suggested in the United States, that would impose a 10–15% value added tax (VAT) and reduce personal and corporate income taxes. The plan was created by Michael J. Graetz, a tax law professor at Columbia Law School and a former Deputy Assistant Secretary of the Treasury for Tax Policy. Graetz states that the plan would generate enough revenue to exclude families earning less than $100,000 of annual income from having to pay income taxes or file tax returns. The Competitive Tax Plan would provide a new payroll tax offset to replace the Earned Income Tax Credit, protecting low and moderate income workers from any tax increase under the new system. Under the initial proposal, households with an annual income of more than $100,000 would be taxed at a flat 25% rate and the corporate income tax rate would be reduced to 25%. Graetz argues that reducing the corporate tax rate "would make the United States an extremely attractive nation for corporate investments for both U.S. citizens and foreign investors". In 2013, Graetz presented an updated version of his plan for 2015.

Buffett Rule 2011 tax plan by President Obama

The Buffett Rule is part of a tax plan which would require millionaires and billionaires to pay the same tax rate as middle class families and working people. It was proposed by President Barack Obama in 2011. The tax plan proposed would apply a minimum tax rate of 30 percent on individuals making more than one million dollars a year. According to a White House official, the new tax rate would directly affect 0.3 percent of taxpayers.

Illinois Fair Tax Failed 2020 amendment proposition in Illinois, U.S.

The Illinois Fair Tax was a proposed amendment to the Illinois state constitution that would have effectively changed the state income tax system from a flat tax to a graduated income tax. The proposal, formally titled the "Allow for Graduated Income Tax Amendment", appeared on the ballot in the November 3, 2020 election in Illinois as a legislatively referred constitutional amendment striking language from the Constitution of Illinois requiring a flat state income tax. Concurrent with the proposed constitutional amendment, the Illinois legislature passed legislation setting a new set of graduated income tax rates that would have taken effect had the amendment been approved by voters.

Americans Standing for the Simplification of the Estate Tax

Americans Standing for the Simplification of the Estate Tax (ASSET) is a lobbying group of individuals and private businesses, which advocates changing the collection method for the estate tax in the United States. ASSET works with think tanks, elected officials and lobbyists on Capitol Hill to bring about an option that would change the existing estate tax laws.

The 2013 Ontario budget, known as the Prosperous and Fair Ontario Act, is the budget for the province of Ontario for fiscal year 2013. It was presented to the Legislative Assembly of Ontario for its first reading on 2 May 2013 by Charles Sousa, the Minister of Finance of the Government of Ontario, and received Royal Assent on 13 June 2013.

References

  1. ↑ "Rao, S. (2014). Tax reform: Topic guide. Birmingham, UK: GSDRC, University of the Birmingham" . Retrieved 19 February 2016.
  2. ↑ "Revenue Neutral Law & Legal Definition". definitions.uslegal.com. Retrieved 2015-08-21.
  3. ↑ Urensa, Dan (26 September 2013). "In a smaller world, tax reform is overdue". The Australian . Retrieved 13 January 2013.
  4. ↑ Glenday, James (16 August 2013). "Is it time to reform our 'struggling' tax system?". Australian Broadcasting Corporation . Retrieved 13 January 2013.
  5. ↑ "Protecting Prosperity: Why we need to talk about tax". PricewaterhouseCoopers . Retrieved 13 January 2013.
  6. ↑ Tax Reform: Why you should care (YouTube). PricewaterhouseCoopers. 25 August 2013.
  7. ↑ "Protecting prosperity: Why we need to talk about tax" (PDF). PricewaterhouseCoopers. Archived from the original (PDF) on 2013-08-15. Retrieved 13 January 2013.
  8. ↑ "Protecting prosperity: Why we need to talk about tax" (PDF). PricewaterhouseCoopers. Archived from the original (PDF) on 2013-08-15. Retrieved 13 January 2013.
  9. ↑ McMahon, Stephen (23 July 2013). "Report calls on 'fundamental' tax reform to avoid ongoing budget deficits". News.com.au . Retrieved 13 January 2013.
  10. ↑ Burnham, Steve (13 November 2013). "Tax reform is essential to protect Australia's future, says PwC". Taxpayers Australia. Retrieved 13 January 2013.
  11. ↑ O'Dwyer, Kelly (13 November 2012). "Australia needs to get serious about tax reform". Australian Financial Review . Retrieved 13 January 2013.
  12. ↑ White, Andrew (23 July 2013). "Government debt to balloon without tax reform, warns PwC". The Australian . Retrieved 13 January 2013.
  13. ↑ "Henry George Foundation found to offer the only true basis of Economic Freedom and Social Justice" . Retrieved October 1, 2016.
  14. ↑ Fleenor P, Williams J. (2006). Options for Reforming the U.S. Corporate Income Tax. Tax Foundation.
  15. ↑ Salvaging a Domestic Agenda: Toward Bipartisan Tax Reform Archived 2010-12-27 at the Wayback Machine , Washington Monthly
  16. ↑ FAREED ZAKARIA GPS
  17. ↑ http://frwebgate.access.gpo.gov/cgi-bin/getdoc.cgi?dbname=111_cong_bills&docid=f:h4646ih.txt.pdf [ bare URL PDF ]
  18. ↑ "1% Transaction Tax". 8 September 2010.
  19. ↑ Bickley, James. "Tax Reform: An Overview of Proposals in the 112th Congress." Congressional Research Service. 26 Oct. 2012.
  20. ↑ Morgan, David; Becker, Amanda (December 1, 2017). "Senate approves major tax cuts in victory for Trump". Reuters. Retrieved December 2, 2017.
  21. ↑ "Trump signs tax bill before leaving for Mar-a-Lago". CNN. December 22, 2017. Retrieved January 8, 2018.
  22. ↑ Roundup, A WSJ. "What a Tax Overhaul Means for Your Industry". WSJ. Retrieved 2018-11-13.
  23. ↑ Parmley, Suzette. "National Retail Federation hails Senate's passage of tax reform bill". www2.philly.com. Retrieved 2018-11-13.
  24. ↑ "Tax morale and conditional cooperation" (PDF). Archived from the original (PDF) on 25 May 2010. Retrieved 3 January 2013.
  25. ↑ "Do Earmarks Increase Giving to Government?" (PDF). Cbees.utdallas.edu. Archived from the original (PDF) on 3 March 2013. Retrieved 3 January 2013.

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