Question

It is popular to bash the US tax system as the most complex in the world (I do). However, what you put into place if you had to start from nothing? Our class has just seceded from the United States and needs to develop a tax system sufficient to keep our class running which includes funding social programs, healthcare, education, infrastructure, and a small army. Post your idea for a better tax system and what you see as advantages or disadvantages to your recommendation. Feel free to research on other nations' taxing systems. As you create your own system of taxation and evaluate and comment on your colleagues’ suggestions, keep these criteria from Chapter 1 in mind: Sufficiency: involves assessing the aggregate size of the tax revenues that must be generated and making sure that the tax system provides these revenues. Equity: how the tax burden should be distributed across taxpayers. Certainty: means that taxpayers should be able to determine when to pay the tax, where to pay the tax, and how to determine the tax. Convenience: tax system should be designed to be collected without undue hardship to the taxpayer. Economy: should minimize the compliance and administration costs associated with the tax system.

Answer 1

First of all what makes taxation complex is taxation on income, various deductions provided by government to save tax as much as possible and then efforts by people to evade tax and then again counter action by government to stop those evasion of tax which ultimately results in more compliances with taxation system and ultimately making the entire taxation system to be a very complex thing.

What if there will be no taxation on income. Then the immediate question arise in your mind will be , from where the cash will come then to fund various programmed.

Well then , yes we need cash to fund various programmes and such Cash may come from taxes on consumption of goods. Yes, we can simply impose taxation on consumption of goods and services.

You may thought that it's against the principle of progressive taxation. And it may not be justified for small people earning less income. I have a solution for it weay have two slabs of taxation on consumption of goods and services. Goods and services of essential nature may hear a small taxation rates . Goods and services like vegetables , rental of home etc are a sort of essential goods and services and it may bear beat a small taxation rate. Whereas some luxury goods and non promotive gppds like expensive wines, cars, cigars etc may be having higher taxation rates. In such manner people will not feel that they have paid any tax and thus they will not make any unnecessary efforts to evade tax and ultimately there will be no counter action by government and thus less complexities will be there.

Equity : The whole tax burden will be borne in different different ways by various consumers of goods and services.

Certainty : Now here as far as taxpayment is concerned, it will be paid in an indirect ways. Like the consumer along with the price of goods and services will also pay the tax amount to the seller of those goods and services and the tax payer will deposit the amount of tax that he has collected to the goverenment on a monthly basis. We can create a chain of credit here which will help in evasion of tax. Like the seller would have purchased those goods from another seller at the time then former seller would have been a buyer and must have paid tax on his purchase to the original seller . Now whatever tax he has paid he should be able to cliam it, in this way there will a system of check and error which will help in evasion of tax.

So on final note the ultimate receipt of tax to government will be on a monthly basis.

Convenience : tax system should be planned in such a manner that all tax return filing as well as tax payment could be done through your smartphone itself. Which will not lead to any wastage of time of people and everything from return filing to payment of tax will be done with ease by a single click.

Economy : when everything will be one online you need not to hire large number of staff for their daily performance of tasks every thing will be done online and also due to those check and error system mentioned above there will be less complexities and thus overall there will be less administrative cost associated with the tax system.