Discussion 1 Week One


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Critics of the Federal Income Tax often complain about the complexity of the tax law ….  In fact, former President Jimmy Carter called our tax law “a disgrace” and Albert Einstein threw up his hands in frustration and said that it was too complicated for him to understand.   One common suggestion to improve our  tax law  seems to be that it would be much easier to raise revenue for the Federal government with a national sales tax or a flat income tax with no deductions (based simply on gross income).   Please refute these  contentions and defend our tax system.  Explain how the Income Tax is  designed to achieve multiple goals, i.e., social – political – economic – stimulus – incentive – disincentive objectives ….. and that raising revenue for the government is not the only purpose of the income tax law.

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Comment #1

One purpose for tax is to raise revenue for governmental activities, rather than to influence business and personal decisions. A fundamental development from 1917 onwards was the introduction and expansion of a progressive income tax system, a system informed by the ability-to-pay principle and designed to take a larger percentage of the total income of higher-income than of lower-income earners (Prince, 2018). Another integral principle – equalization – introduced in 1957, commits the federal government to transfer payments to certain provinces to ensure the provision of reasonably comparable public services across the provinces at reasonably comparable levels of taxation (Prince, 2018). The tax laws purpose is to modify taxpayer behavior in some way to assist with achieving some public policy goal.

Taxes are needed to raise revenue for governmental functions such as the provision of public goods. On the other hand, some service-oriented enterprises may be established to earn additional revenue to strengthen the local government (Datta, 2018). Fund raising entrepreneurship at local government is a new concept to strengthen the local government and socio-economic development (Datta, 2018). Taxation can reduce the unequal distribution of income and wealth that results from the normal operation of a market-based economy. This initiative may have double benefits; first is, strengthening local government by setting some locally appropriate services and manufacturing oriented, revenue generating commercial projects, which would help in earning more revenue and thereby, leading to increase in the development fund for undertaking infrastructural development projects (Datta, 2018). Tax law can be used to steer private sector activity in the directions desired by governments.

Political factors are activities related to governmental policies that can have an effect on something. A potential political benefit for the United States from IFRS adoption is that it signals an additional willingness on the part of U.S. policymakers to cooperate with other major countries on important global issues (Hail, Leuz, & Wysocki, 2010). The pandemic has affected the area of taxes by delaying the tax date and leaving companies to file for relief. Customers that are affected by the pandemic may be unable to pay outstanding invoices. Not being able to pay outstanding invoices will result in additional credit and liquidity risks, higher than usual bad debt, and even impairments and write-offs. Cash flows from operations may also be affected.

Comment #2

The National Taxpayer Advocate is one of the organizations that is in favor of the simplification of the tax system. “America’s taxpayers deserve a simpler and less burdensome tax system that enables them to comply with their tax obligations expeditiously.” (Taxpayer Advocate Service, 2008) It is said that American taxpayers need a less complicated and less expensive System. One of The National Taxpayer Advocate’s recommendations is that a simpler system will allow taxpayers to prepare their own returns without professional help. Stated in this way, it may seem that a market, which employs about 3.8 million employees, could be eliminated or reduced considerably. Obviously, I would not want to lose my job.

Although the thousands of provisions that make up the North American tax system complicate their understanding and application, they have an economic, political and social function. We must not renounce to the improvement of regulations, so taxpayer and professionals may able to understand it and applied it correctly. However, oversimplifying the system implies reducing fiscal policies that seek to boost the economy. I respect the views of liberals, but I believe that governments should use their institutions to balance market misalignments. Fiscal policy is one of the most important tools for a country to achieve economic growth and offer the essential social benefits.

For example, “the U.S. government provides tax-free treatment for most income earned in retirement accounts, pensions, college savings accounts, and non-profits.” (Clausing, 2016) To compensate for this fiscal deficit, the tax burden is shifted to the capital of the corporations. At the same time, certain sectors of the economy may need tax incentives that allow a higher rate of investment. In today’s world, capitals move to tax havens. This in some way raises concern in a highly importing country like the US. So what I mean to say is that the world economic scenario is so complex that it has a direct effect on the country’s fiscal policy.

Discussion #2

What are the current tax issues being reported in the press and are there any major changes that might be coming up in the future?  Do you think that these changes are going to help our economy or set us back and why?

Comment #1

ne major current tax issue is the topic of qualified improvement property’s retail glitch. The tax community is still waiting on a fix for an oversight in the TCJA for qualified improvement property (Henley, 2020). As part of broader changes to the bonus depreciation deduction, the TCJA created a new category of real property- qualified improvement property (QIP)-that encompasses several types of property previously eligible for bonus depreciation, including qualified leasehold improvements, qualified restaurant property, and qualified retail improvements property (Henley, 2020). These types of property had been eligible for a 15-year cost recovery period and IRC section 179 expensing, prior to the TCJA. Any other type of real property outside of these categories had a cost recovery period of 39 years (Henley, 2020). Qualified improvement property is an improvement to an interior portion of a building which is nonresidential real property if such improvement is placed in service after the date the building was first placed in service.

The CARES Act used qualified improvement property as a 15-year property under Sec. 168(e)(3)(E). Certain simplifying provisions enacted by the TCJA are available to businesses with average annual gross receipts not exceeding $25 million (McGovern, Brewer, & Delaney, 2020).The TJCA enacted several simplifying provisions that are available to a business if the business’s average annual gross receipts, measured over the three prior years, do not exceed $25 million (McGovern, Brewer, & Delaney, 2020). Businesses that fluctuate between having income and having losses could be in the position of having to change accounting methods (McGovern, Brewer, & Delaney, 2020).

Several businesses that has invested in qualified improvement property now face higher costs than under previous law. The legislation amended Code § 168 to add new § 168(g)(1)(F) and (g)(8), which require a real property trade or business that elects out of the newly-enacted interest limitation of § 163(j) to use the alternative depreciation system for nonresidential real property, residential rental property, and qualified improvement property (McGovern, & Brewer, 2018). These current issues could set us back as a country. High marginal tax rates will discourage work, saving investment, and innovation which can affect the allocation of economic resources. Tax cuts can slow economic growth by increasing deficits.