Assignment 1: Should the U.S. Convert to a Zero Personal Income Tax?
In a recent news article located at http://www.nbcnews.com/business/economy/heres-where-your-federal-income-tax-dollars-go-f654971, NBC News reported that the U.S. Government spends $3.6 trillion per year to fund Social Security, Medicare, homeland defense and safety, education, transportation, and the interest on debt obligations. In spite of the services and benefits that the government provides, many taxpayers dread paying income taxes but consider them a necessary evil. Consequently, there is much debate about the inequities contained within the tax code, due to tax shelters and tax credits provided to some taxpayers which thereby increase the tax burden on others.
Using the Internet or Strayer Library, research at least two (2) countries that have a zero income tax rate.
Write a four to five (4-5) page paper in which you:
Analyze the way in which the two (2) countries that you have researched provide services and benefits to its citizens without collecting personal income taxes.
For the countries that you have chosen, determine whether or not the U.S. could adopt their taxation model without reducing its total amount of revenue generated by collecting personal income taxes from individuals and business. Justify your response.
Suggest at least three (3) advantages and three (3) disadvantages of the U.S. adopting a zero income tax model. Provide a rationale for your response.
Create a proposal for where the revenue would be derived if the U.S. were to adopt a zero income tax model. In your response, provide specific recommendations concerning the following:
The proposed tax base.
Whether or not tax payers at certain income levels should be exempt from taxation.
The primary way in which the IRS would calculate the tax rate in order to ensure that the same level of tax revenue would still be collected.
The primary way in which your plan will achieve equity.
Speculate on the primary way in which the federal government could make up any shortfalls if it does not collect its targeted revenue from personal income taxes, and ascertain the most significant way in which the U.S. Department of the Treasury, through the IRS, can still adhere to its fiscal and monetary policies. Justify your response.
Use at least four (4) quality academic resources in this assignment. Note: Wikipedia and other Websites do not quality as academic resources.
Your assignment must follow these formatting requirements:
Be typed, double spaced, using Times New Roman font (size 12), with one-inch margins on all sides; citations and references must follow
APA or school-specific format. Check with your professor for any additional instructions.
Include a cover page containing the title of the assignment, the student's name, the professor's name, the course title, and the date. The cover page and the reference page are not included in the required assignment page length.
The specific course learning outcomes associated with this assignment are:
Examine the types of taxes imposed at the federal, state, and local levels; the federal tax formula; and the rules for arriving at personal and dependency exemptions.
Analyze the concepts of gross income and distinguish between the economic, accounting, and tax concepts of gross income and strategies to minimize gross income, maximize deductions, and minimize disallowance of deductions
Use technology and information resources to research issues in federal taxation.
Write clearly and concisely about federal taxation using proper writing mechanics.
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Income tax collections are always a major source of federal government’s source of income. An estimated 59% of the federal government’s income r revenue is derived from income taxes collected from individuals and corporates. Before 1939 this was not a primary source of tax but after the war efforts of 1939, this became a mass tax.
Up from 6% of the population paying income tax in 1939, more than 74% of the entire population ended up paying the tax after post war 1939. And till date this continues to be the most important source of revenue for the federal government. The burden is so heavy that US corporates have shifted their many businesses to Tax heavens like Bermuda, Monaco and even Ireland to save taxes. The debate is vociferous among the population as to whether the federal government shall lessen the burden of paying income tax and a certain section of the population even favours the abolition of the tax entirely.
However provided that the large portion of the governments expenditure comes from collection of taxes, would it be wise for the federal government to abolish the personal income tax and do away with it. Is the system without the personal income tax collection sustainable in the long term? The following discussion paper tries to discuss the pros and cons of the new and proposed system in the long run.