FIN Critical Thinking. Progressive Tax System.Accounting Finance Essay

FIN Critical Thinking 6
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Institution
FIN Critical Thinking 6
Introduction
Taxation is currently one of the contentious issues in the United States and other developing countries around the world. It is without a doubt that taxes play a significant role in the development of nations around the world upon their effective utilization by the said countries. Implementation of effective tax policies forms the basis for achieving the desired economic growth and development for a country. It is, therefore, important for a nation to adopt a taxation policy framework that embraces or rather aligns with its development strategy. Determining the effective tax policies for a nation’s economic growth and development needs makes for one of the contentious issues facing most countries around the globe. Progressive and flat taxation systems are the two main taxation policy frameworks embraced by various governments across the different economic levels of development. Both taxation policy frameworks have their merits and demerits for a given nation and thus evoking different reactions from various factions of society including politicians as well as the economists. However, such differences have been in existence in many countries as can be witnessed in the history of taxation for the same. The United States, for instance, faces a policy-making dilemma with the political leadership divided on which taxation policy to adapt for its long-term economic growth and development. The nation follows a progressive tax system, which has come under sharp scrutiny and criticism from politicians and economist alike citing hindrance to economic growth and unfairness. Opponents of the tax system advocate for the adoption of the flat tax system. Provided herein is a comprehensive analysis of the features, merits, and demerits for the two systems of taxation and their overall effect on the issue of tax evasion.
Progressive Tax System
As the word suggests, progressive tax system is characteristic of different categories of income with each category having a different tax rate depending on the level of income. The rate of taxation for each category or bracket of income is proportional to the amount of income CITATION Roa10 \l 1033 (Roach, 2010). In progressive tax systems the tax rate for high-income earners is higher than that of the low-income earners. The United States taxation policy consists of a tax rate implementation framework to guide the tax officials with the guidelines of imposing taxes on both individuals and households depending on their levels of income. It is evident that progressive tax builds on the concept that individuals or households with higher incomes have the ability to pay equally higher taxes without sacrificing important needs for their daily lives CITATION Roa10 \l 1033 (Roach, 2010). Additionally, the system allows for the adjustment of the taxable incomes through exemptions, tax credits, and even exemptions among the taxpayers. Low-income earners, on the other hand, may have to forego expenditure on basic needs if they were to pay the same taxes as their counterparts under the progressive system. In essence, the tax rates increase with increasing income in the progressive tax system and thus leading to various advantages as well as disadvantages to the economy and the nation as a whole.
* Advantages
Among the merits of embracing the progressive tax system includes the fact that the burden of tax payment shifts towards those with the ability to pay without sacrificing their basic needs. Even though the low-income earners also pay their taxes under the system, the burden is distributed across the income divide with the high-income earners reducing the burden for the former CITATION Roa10 \l 1033 (Roach, 2010). In the progressive tax system is that individuals with greater or more influence in society carry an equally bigger share of the tax burden.
Another benefit or advantage of the progressive tax system is that it promotes economic equality among members of society. The tax system functions to shift the burden of tax to the high-income earners and thus creating a fair distribution of the same across the income divide. The distribution of the benefits gained from the budgetary allocation of the revenue collected from tax should also follow the same guideline to enhance equality. Promotion of economic equality in the nation demands prioritization of the needs of low-income earners and households during the distribution...