Conservitives, especially Neocons and George W. Bush, make great political hay on the stance of taxing Income only once; a Shorthand for eliminating Capital Gains and other forms of Investment taxation. There are several reasons why this is bad policy, which the author will discuss here sooner or later. Right now he will enter in Tax theory to present a grounding for evaluation.
There are three major concerns when considering Tax policy: Tax fairness, Tax impact, and Tax balance. Tax fairness states all Taxpayers should endure equal restriction in their economic participation due to the Tax. Tax impact remains the study of actual placement of a Tax, where and who it exactly falls upon and how heavily it affects such Taxpayers' economic participation. Tax balance recognizes different types of Tax fall harder on one group of Taxpayers, and is the determination of the matrix of taxation necessary to gain Tax fairness. The Later stands of high importance, as there is an inequality of Tax impact associated with every form of Tax.
Sales (Consumption) taxes reflect sharp tax regression, as lower-Income households spend a much higher percentage of Household Income on Consumption than higer-Income households; this assessing a much higher percentage real tax rate on the lower-Income households. The lower-Income households not only must economically participate with lower Income, but with a higher, heavier tax impact rate of taxation.
Income Taxes are inherently a progressive taxation, even a Flat-Rate Income Tax system, this effect steming from higher Incomes pay higher real monetary contributions. Income taxes though, especially Flat-Rate Income, absorb real ability to Consume from Poor households faster than from higher-Income households. This fact leads Many to oppose a Flat-Rate Income tax system, in favor of a progressive Income Tax system.
Value-Added taxation remains a third method, taxing a minimal amount at every stage of the Production process. The trouble comes in this form of Taxation incites a much higher final real taxation than desired. Each succeeding stage derives its Profit ratio from both the Production Cost and the Value-Added tax of the previous stage. The Value-Added tax is very lucritive for Business enterprise, but a disaster for the Consumer--who winds up paying a horrific real tax rate to secure the Business Profits as well as the Tax. As the total tax impact falls upon the Consumer, it is a very regressive tax; lower-Income households being high Consumers enjoying little particaption in Business Profits, with the reverse for high-Income households.
A fourth method of Taxation could be an Assets Tax. Assessment would be adjudged by subtracting Total Liabilities from Total Assets, then assessing a tax on the residual. Here lies a problem of assessment and proof. It would require an extreme amount of collaction time to collect the assessment and proof, beyond poor households' ability to endure. Such a tax would also be regressive upon the Wealthy, who would be penalized for being successful.
Back to the proposition that Income should be taxed only once. It is inherently regrssive in nature, poor households hold funcionally no Investments, and lower-Income households a relatively small percentage of total holdings. The lower Ninety percent of Households might save three percent of the taxes they now pay. The upper Ten percent of Household Incomes would reduce their taxable Income to one-quarter of current levels, and the Top One Percent of Incomes would reduce their taxable Income to a tenth of current levels subject to tax. The Income Tax rates, though, would have to be adjusted upward to generate the tax revenues necessary to fund Government operations. It stands as the most regressive tax of all. lgl
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