The question of the best kind of taxation system favorable for use has raised great concerns to many people and governments. The purpose of the study is to present information on both systems in order to determine the system that is more favorable for use. From the information provided, then a conclusion will be drawn on the system that seems to be more favorable.
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To begin with, we will look at the national sales tax system and discuss all the information related to it, both positive and negative. We will first discuss the positive part of the system. The national sales tax system discourages consumption leading to the conservation of resources. The imposition of a national sales tax will mean that the price for some of the resources will increase; when the price of commodities increases, the demand declines. This means that the demand for most of the resources will reduce hence conservation of these resources. For instance, if we take the example of the united states, whereby it consumes more than twenty-five percent of the world’s resources if national sales tax is used, it will mean that the cost of these resources will increase while consumption will decline. The difference of consumption before the imposition of sales tax and after will be conserved for use in the future.
National sales tax encourages savings and investing; this is because the little amount people earn is not taxed; hence it will be easier to save and invest the earnings in other better areas. When the rate of savings and investment is increased, it means that the economy will grow since the interest rates of borrowing decline, meaning that many of the people will borrow the funds and invest. This results in economic growth because banks and other corporations gain more funds that they invest in other viable business projects, hence economic growth experienced in every sector in a country. (Masserli, 2008).
National sales income encourages people in a society to work hard and earn more income. This generally results in increased productivity in a nation. This is because people are not taxed for the hard-earned amount hence encouraging them to work harder. This results in increased national employment hence causing the productivity in a country to increase.
Sales tax is usually a simpler taxation system since it reduces the need for people to comply with the complicated tax reporting system. It also helps to save money and time lost on the income tax process. There are high amounts of funds and time that are lost in the process of complying with the taxation process hence the need for a system that makes the process to be easier.
On the other hand, the national sales tax would be a regressive tax; this is because the people earning low income would pay a higher share of their income as tax as compared to the people with higher income earners. In most cases, necessities take up a large portion of people’s income, so the people earning low income will be affected most as compared to the ones with higher income earners. The rates of taxation go down as the income levels increase; hence people with low-income amounts being highly affected.
Although national sales income is a good system for practice, it has certain risks associated with it. The system may not raise enough funds for the support of all the needs of the society that include education, defense, and healthcare. This is because, as compared to the income tax, the amount of revenue collected through national sales tax will be low since it will be collected only from the businesses that constitute a lower percentage as compared to individual people in the society. (Metcalf, 1997).
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In addition, consumer spending that constitutes high amounts of revenue and that drives the economy of a country will be highly reduced if people concentrate more on savings and investment rather than on spending. It means that people will not spend much hence consumer spending will be minimal, and it is the major booster of gross domestic product.
The use of the national sales tax would result in the elimination of many of the incentives in society, for instance, education and homeownership. These incentives are provided by the income tax systems, and they help society in general. The education incentives through the income tax system help many people to access education in a much simpler manner. Implementation of the national sales tax system will mean that these incentives will not be available for many of the people in the society hence a disadvantage to the society. (National Retail Sales Tax Alliance, 2005).
On the other hand, national income tax means that people are taxed the little amount they earn. This is one way or another, discourages hard work since the more one earns, the more the taxation; hence it seems like punishing people for their hard work. Replacing the income tax with national sales income will help to reduce all the resources that are necessary to fulfill the tax requirements by the income tax process. The business selling goods would be the only ones filling federal tax requirements. The heavy burden of tax payment would be reduced from many of the hardworking individuals, and in turn, they will be motivated to work harder to earn more hence invest in other areas for economic growth.
The use of national sales income will result in a reduction of complex processes involved in the payment of the taxes. This is because all the taxes in a country will be collected through the retail businesses since every person in the society purchases retail products, the taxes would be included there. It will mean that the complex processes of paying tax by individuals will be eliminated; hence the time and resources invested in these processes will be invested elsewhere. In addition, these systems would allow the easier collection of tax and in an effective manner as the preparer fees are low such that it does not present more costs to the taxpayers since collection fees are minimal. (Burton & Mastromarco, 1997).
Despite the fact that the national sales income system seems to challenge the people with low levels of income, it offers a fair taxation system to all people in the society, both rich and poor. This is because the retail products are the ones taxed; hence every person pays tax at equal rates, the difference being that the people who purchase more products are eligible to pay higher amounts.
In conclusion, the national sales tax system is more favorable for use to many of the people in the society than the national income tax system. From the analysis, the system has more advantages than the national income tax. The current income tax system is outdated and complex as compared to the national sales tax system. Because of such complexities, it is better to adopt the national sales tax system that is fair to all people and, at the same time, is less costly to implement. In addition, income tax systems penalize people for their hard-working work and productivity, and this should not be the case. People should be encouraged to work harder in society in order to improve the economic conditions. This can be achieved only through a national sales tax system that encourages people to work. (Mirror of justice, 2008).
Burton R.D & Mastromarco D.R, (1997), Policy analysis, Emancipating America from the income Tax: How a national sales tax would work, Cato Policy Analysis No. 272, Web.
Masserli J. (2008), Should the U.S Institute a National Sales Tax (or the “Fair Tax”) to Replace the Income Tax?, Web.
Metcalf G.E, (1997), Policy Analysis, National sales Tax: Who bears the burden? Cato Institute, Cato Policy Analysis No. 289. Web.
Mirror of justice, (2008), Tax and taxation law, Should we replace national income tax with national sales tax? Web.
National Retail Sales Tax Alliance, (2005), Are you tired with our income tax system. Web.