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Introduction
Taxation primarily imposes mandatory levies on entities and individuals through countries governments globally. While there are many varying tax systems, the majority of the United States citizens recognize the essential part played by taxes paid to local, state, and federal governments in the provision of public utilities. For a government to discharge its mandate expeditiously, it collects income taxes from its citizens to raise revenue. The collection methodology is what is being referred to as a tax system. This paper aims to evaluate and determine the best tax system between the current system-Progressive and a flat-rate tax system.
Body
Civilized and prosperous societies accept and comply with tax levies imposed, provided the taxation criteria generally embrace admissible principles. Khatri-Chhetri (2019) suggests that among the key aspects that make a tax system acceptable to citizens are; one, a political process that guides citizens on the extent and how they will be taxed. Public officers are also required to work and serve as trustworthy stewards of the resources generated through taxation. Lastly, Citizens consider tax benefits and burdens are distributed equitably and fairly.
Presumably, taxes are levied for collective taxpayers welfare as a wholenevertheless, the liability to pay lies individually to the taxpayer. As a result, taxation is perceived as a means of income and wealth distribution among citizens in a particular jurisdiction. A flat or proportional tax assigns a certain percentage of income as a levy on all taxpayers. Therefore, the tax increases in the same proportion that income rises. On the contrary, progressive tax system, income-tax liability is more than a proportional increase in income.
Advantages of Progressive Tax System
The progressive tax system charges high-income earners more and low-income workers less. This strategy reduces the burden on the poor and draws more resources from the wealth to the shared revenue basket for redistribution. Secondly, the progressive tax system generates higher revenue than flat taxation. Consequently, the poor are taxed less to support and enhance their welfare. Lastly, the progressive tax system reduces both social and economic inequality (Philippova et al., 2018). Levying the poor less and the rich higher prevents those at the bottom of the income spectrum from becoming poorer and limits the rich from becoming wealthier at the expense of the rest.
Disadvantages of Progressive Tax System
The progressive tax system is a disincentive mechanism for the rich in their bid to continue wealth creation. The tax structure disproportionately taxes the rich more than the low-income earners. Secondly, the tax system is very disproportional, and levying the rich exploitatively, discourages citizens from working to create wealth, consequently lowering government revenue. Also, the system leads to capital flight as citizens move to less punitive tax regimes. Finally, progressive taxation has a high administrative cost due to the large and many tax brackets.
Proportional/flat Tax System
A flat tax system is simple and easy for individuals to determine. It also eliminates compliance costs in its administration (Nadirov et al., 2021). On the other hand, a flat tax structure negates the principle of wealth redistribution since every citizen is taxed equally. The proportional tax system adds a burden on the lower and middle-income households while progressive taxation reduces.
Conclusion
Though both tax systems have pros and cons, the progressive tax systems benefits overwhelm its disadvantages and the profits of flat taxation. Therefore, in my opinion, the current (progressive) taxation is the best tax system for everyone. With this tax structure, the rates increase with income. It is fair to both the high and low-income earners, especially the poor. The progressive tax system eliminates the tendency for the rich to become richer and the poor to become poorer.
References
Khatri-Chhetri, J. B. (2019). Guiding principles of good tax policy: Is there an association between the principles of the income tax of Nepal and the principles of good tax policy suggested by AICPA? Pravaha, 25(1), 71-86.
Nadirov, O., Dehning, B., & Pavelkova, D. (2021). Taxes and the incentive to work under flat and progressive tax systems in Slovakia. Economics and Sociology, 14(2), 40-55.
Philippova, N. V., Akhmadeev, R. G., Bykanova, O. A., & Chaykovskaya, L. A. (2018). Social equity: A route to progressive taxation of individuals. European Research Studies Journal Volume XXI, 317-330.
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