Although views about what makes a perfect tax system will differ, there is the usual consensus that a ‘good tax system’ must follow five basic conditions. Characteristics of a constructive Tax system should meet these principles- fairness, simplicity, transparency, adequacy, and administrative ease to maximize effective operation. Complying with federal tax filings guidelines, American businesses and households pay out enormous hours to decode federal tax filing. As it gets complicated each time, lawmakers and federal bodies have come up with significant proposals to introduce a simpler Tax System. But where to start?
Tax complexities are just like the weather- we all can relate to it. Everyone discusses and debates, don’t we! Let’s explore the basics of the significance of a simpler tax system to understand the key elements of the US Tax System and ways to make the tax system work.
Benefits of simpler taxes
A simple Tax system holds lower compliance costs in terms of money and time. It also encourages taxpayers to practice functional tax filing provision, which is aimed further to help people and other socially desirable pursuits. In a word, simplification could enhance the overall tax code, like improving compliance while lowering down the inadvertent non-payment of necessary taxes. To encourage good Tax Policy, count the benefits mentioned below:
1. Encourage Clarity
To drive an efficient system, clear and unambiguous approaches deliver simpler and less complex tax laws. The simpler the tax laws are, the more it is easy to follow. Moreover, complex law systems lead to errors and end the number of penalties. Surely you won’t want any of these.
For any responsible taxpayers, tax filing is a maze of bewilderment- filing, following, issuing, and filling-up requirements are few of the steps that actually make us exhausted. With the introduction of a transparent tax system, as a citizen, we will know who is being taxed, how much is the payment, and what is being performed with the collected money.
3. Issuing Adequacy
It is just as important as the other fundamentals of the tax system; adequacy issues enough information about the revenue to manage the basic requirements of the community or society. To get the test of adequacy is imperative for any taxpayers and, thus, motivates others to comply. Moreover, to administer the public service demands, including transparency, will generate revenue growth to fund the necessary economic developments.
4. Ease of Administration
With the term of administrative ease, we can very well relate to it- funny, isn’t it? Ease in the tax system administration erases too many complications for both the parties: tax collectors and taxpayers. Of course, rules are well known to all, but it is fairly difficult to memorize it. Hence, to make it more relaxed, the state can introduce authentic information about taxes and conduct audits in an efficient manner.
5. Managing fairness
There are two significant concepts of equity to manage fairness – a fair share of tax payment by everyone, and they are:
- Horizontal equity: Horizontal equity defines that every taxpayer in similar financial circumstances must remunerate similar tax payments.
- Vertical equity: Considered as an important subject, Vertical equity means that any taxpayer who is better off or financially well off must pay at least the same amount of proportion of income as tax payment as those who are less wealthy.
Four Methods to commence a simple, fair, and efficient tax system:
As it is a topic of debate, there are innumerable discussions attempted by the state treasurers to balance the budget, and suggested to follow a more respective good tax system with a renewed focus on the GST rate. In terms of the grounds of equity, it is imperative to manage low-income earners. Here are four ways that reap more benefits and develops the fairness of the tax system:
To Simplify Stamp duty:
Primarily known as a transactional tax, the process of Stamp duty could be streamlined to make sure that the collected revenue represents those who are participating in property transactions. Simple and efficient- we all agree to it! In this fashion, a high tax-free magnitude could be elaborated.
Escalating Land tax:
Land tax is pertinent to follow, and thus, to ensure its effective practice, renewed attention must be followed. As it is difficult to avoid, investment companies must be monitored from time to time for managing the land values and to collect more land tax investment properties. Thus, the land tax expansion would also be observed as equitable.
Streamline various tax policies:
Why should we focus on various tax policies and tugging hair to understand? As the states receive all the GST, they will eventually get the share of the estimated income tax revenue. The state leaders and federal government must focus on reforming GST policies and improvise the tax system to administer an equitable system.
Growing Medicare levy:
Again one more feature, the Medicare levy, can be linked-to taxable income for an efficient tax system. Growth in the rate could be practiced over the years and, thus, would be observed as equitable.
The Closing Remarks:
The overall discussion about the fundamentals of a simpler tax system has mostly covered what conventional market researchers and economists discuss taxation. However, we are all still quite related to this subject, as comprehending these tax principles is difficult from time to time. Ranging from Chanakya from ancient age to contemporary Adam Smith, have focused on the variability and highly contentious issues of tax complexity, size, and fairness. Any good and simple tax reform bill will take time, but these considerations must be taken into account to design a sales tax filing code that is easy and more understandable to comply with.