This research topic is on a financial problem that is affecting the US department regardless of the position; be it federal, state or local. The issue highlighted is a current one and therefore the essay is on current events. Each country has its challenges when it comes to the financial sector. The United States is no exception from other countries. It also suffers huge debts that could also threaten its standing. One factor is to be selected and discussed in the report below. The financial problem discussed here is on taxes. This issue is one of the major issues that are affecting America currently financially. After identification of the issue and proper analysis of the subject, a solution has to be sought that can be adopted to harness the issue and find a way out of it. The generation of a viable solution that can be easily adopted by the government would be very helpful. Such a solution would be critical, since, as written and analyzed by various people, the solutions are unpalatable and very difficult to put into practice. Due to this, most leaders have always been avoiding the question since there seems to be no better and palatable way to go about it without causing much harm yet not complex. For this reason, every detail had to be collected and assesses for its workability before being tabled.
As at now the federal taxes in the country are about 18 percent of GDP. This amount is a rough estimate to what was there in the 1950s. This increment is due to an observed increase in the state and local taxes. These totals are quite higher than the 34 percent GDP which has risen from 26% during the mid-1950s. This totals are however lower than the high tax totals of 36% that was attained more than fifteen years ago. Then, it occurred severally not once. Dating back on history, it is observed that there were no low tax levels in the past. This therefore leaves them with plenty of space to raise the tax levels before going to an unprecedented country. Having no record of low taxes, gives strength to ensure that the tax levels do not drop since the past record was excellent. This therefore leaves the current stakeholders to find out where the rain began beating them and patch things up. The tax levels have to bounce back in order for the smooth running of the nation and for the nation to comfortably support its residents without a lot of donor aid. This reason forms the main basis for boosting up the task levels. Discussed below are some of the measures that can be applied in rejuvenating the dwindling tax trend.
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First, it is imperative that a good tax system will be able to generate revenue which is needed to finance the government and the state in general. Therefore for there to be more tax collected, it means that the tax system has to be attacked and necessary reinforcements out in place and some torn down.
Increasing environmental taxes;
Tax can be introduced on specific environmental products such as the fossils which are sources of fuels. This move is encouraged, since, apart from curbing pollution and encouraging healthy lives, it will also address the burning issue of global warming that is being addressed worldwide. On this, carbon taxation will commence and this will be in a move to correct market failure. This would [positively impact in raising the revenue and leading to an efficient economy at the same time. It is estimated that introduction of this policy would lead to the realization of a 0.7 percent increase of GDP which is approximately $160,000 billion per annum. This strategy will therefore see to the reduction of some debts just by performing this step. This irreversible change in the price signals due to legalizing the carbon taxation policy will stimulate the rise of new private research bodies that will develop means of tapping renewable energy and invest on energy-saving technique. This approach will also translate to a reformation and simplified climate-affiliated policies in the transport sector.
Raising long-term revenues;
In order for the current debt form 1957-2207 to be managed at least to an average 36% GDP by 2046, a lot of measures will have to be put in place. This strategy will see social security changes being phased in gradually in a way that will not affect the fiscal balance to a great extent. Reckless spending will also be cut down to significantly minimal shares of GDP for the coming 25 years. In order to raise the revenue some of the below procedures can be applied:
Increase the width of the tax base by minimizing special credits and subtractions in the tax code. This method could alternatively be done by capping the total tax paid out by a person which they is claimable.
Creation of a federal VAT system. This method is highly adopted by other nations except America. The end result is high revenues and the government should be limited on spending as one of the measures to enact VAT. If this approach is followed, the net revenue will witness a growth by 2% GDP or an estimated $390 billion which is a good amount (William et al., 2013).
Revising treatment
According to Kearney and Turner, they suggested a 20 percent tax reduction on the secondary earner until when the cap is reached. This proposal was to be met in conjunction with the following ideas:
Improved work incentives; this method would generate a reinforced economic security to those in the low-income and middle level families and tentatively lighten the minor earner’s payment.
Lessen tax load of the low and middle class earners making them eligible for EITC or rather they should change the Child and Dependent Care Credit to a refundable gain. EITC is beneficial to families who have less than two children and the childless workers. This plan will lead to improved work incentives relatively translating to better economic results. CDCC enables the low income families harvest immense benefits enabling them retain more disposable income (Hoynes & Ziliac, 2014).
Performing corporate taxation;
As observed, there are some forms of corporates which pay tow levels of tax while others pay none. The objective should be taxing all corporate income only a single time but should be taxing fully at income tax rates. A portion or alternatively all the income tax should be replaced with shareholder wealth accumulation tax resulting to no corporate tax (Allan et al., 2010). This is substituted by taxing dividends, capital gains at ordinary income tax rates with the capital gains being taxed upon accrual than on realization. This tax should then be converted into corporate cash-flow task. This form of tax is a tax on destination basis hence limits focus of tax to domestic transactions and therefore avoiding all international transfer pricing issues.
Taxing the rich
Higher taxes should be imposed on capital gains and dividends with restrictions being placed on tax paid out. The affluent in the society should be put on higher income tax rates and tighter estate tax. This approach is due to the fact that as their wealth grows, their task is not growing as well. It would therefore be imperative to impose these tax rates on them in order to tap much from them.
Conclusion
After the entire essay, it is vital to acknowledge that there is a financial problem and it needs to be corrected. The measures highlighted would comfortably address the issues at hand. It therefore becomes necessary to find out the trend of something before giving out solutions since some of the solutions would be impractical if there was no background information to back it up. The study also brought into focus the different strategies a state can use in order to revive its system. The study was therefore very enlightening and informative.
References
Auerbach, A. J. (2010). A Modern Corporate Tax . Center for American Progress.
Hoynes, H. (2014). Proposal 11: Building on the Success of the Earned Income Tax Credit. Policies to Address Poverty in America , 119.
Kearney, M. S., & Turner, L. (2013). Giving secondary earners a tax break: A proposal to help low-and middle-income families. The Hamilton Project Discussion Paper , 7 .
Gale, W. G. (2013). The tax favored by most economists. Washington DC, USA: The Brookings Institute .
Donald Marron, Eric Toder, and Lydia Austin, “Taxing Carbon: What, Why, and How,” Tax Policy Center, June 24, 2015 ,
