RE: “Tax Reform: These Small Steps Could Help Deficit, Economy”

August 24, 2010 § Leave a comment

I would like to respond to an interesting article who my classmate, Bobby, has shared on Diigo, that pertains to the diminishing US economy by its tax system.

Some individuals suggest that the US tax system is coming to a turning-point: perhaps a milestone for change. Since the US former president, Bush, enforced the tax-cuts in years 2000 and 2003 and is nearly coming to an expiration date by the end of this year, some people are rushing for a new system while some others insist to keep the old system. At the moment, the Obama administration has been extenuating on the fact that they will keep continuing to exempt people who earn more income  from the tax-cuts. On the other hand, the congressional democrats prefer to let the package expire instead. That means we are down to whether augmenting the cuts or either making them perpetual.

The economic term, tax-cuts, is self-explanatory: “cut”, or reduction in taxes. This pertains to theories of Keynesian economics. At times, the government may decide to differentiate between groups who merely “earn more” and those who “earn less”. According to individuals’ or  either families’ income, the government decides who will be ‘cut’ from paying taxes.

In the past, there have been four main big ameliorations in history, all relating to “fiscal crisis” (Farrel, 2010): Civil War, World War I, the Great Depression, and World War II. As the US especially faces the financial crisis at a moment like this, the government changes its system in order to make more money.

With many other reforms the Obama Administration attempted to take on: Health-care, fiscal stimulus, financial services, perhaps it would be encouraging for the lawmakers to go on an easy “step-by-step” process. To article here suggests to enforce VAT, otherwise known as a Value Added Tax. “The starting point: trading for a broader tax base in return for lower tax rates” (Farrel, 2010).  Other economists such as Andrew Samwick suggests to disregard the income tax, and instead, raising gasoline taxes to reduce offsets for payroll taxes.

But whatever gets decided, I believe it is solely hasty to talk about what’s wrong and what’s not. After mid-term elections, perhaps the Congress will realize how broken the US tax system is at the moment and the importance of attempting to give an effort in fixing it.

Picture from here


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