The Arthur Laffer Curve is another tool to explain the effects of tax fairness. The research focuses on the Arthur Laffer Curve. The research touches on the Tax Fairness Proposal. The Laffer Curve is an important technique to determine the optimum tax rates.
Arthur Laffer Curve
Stephen Slavin (125) emphasizes that the government continues to expand its ways and means of maxising resources. Tax collection is one of those excellently managed revenue generating activities.
The Arthur Laffer curve indicates that there exists a minimum of one income tax rate where the tax revenue will be maximized. The Laffer curve is typically represented as a stylized graph that begins at the zero rate and ends at the 100 percent rate. There are also several curves that comply with these boundary limitations. There is little that can be stated without giving out some theories or empirical statistical information.
The disadvantage of the Laffer curve shows that the increase in the tax rates will become too unbearable to the paying individuals and business people. In the same way the tax rate of 100 percent would discourage to the people from working. The people would feel it is useless to work because the government will get every penny of the person’s total wages.
The Laffer curve shows that the tax rate increase will result to a diminishing return both the government and the companies being taxed at burdensome levels. The people will surely decrease their interest to work harder if they are taxet at 85 percent or 90 percent of their total earnings. On the other hand, the government will stand to loss public funds if the government taxes income using a one percent or two percent rate based on the company’s net income.
There are different opinions or biases on the optimum revenue maximizing tax rates. On the government side, a higher tax rate would be favorable because it would increase the government’s tax revenues. On the other side of the coin, the tax papers would prefer a lower tax rate. A lower tax rate would precipitate to higher cash on hand. The companies need the higher cash on hand assets in order to pay for the daily operating expenses of the government.
Fair Tax Proposal
The Fair Tax Proposal is a primary tax proposal that would take the place of all major tax sources imposed by the United States government. The tax sources include federal taxes on personal profits and income from corporate activities. The new tax proposal, Fair
Tax, one solo wide national consumption tax on retail sales will be implemented. The Fair Tax Act (H.R. 25) will be imposed on all goods and services during the time of sale. The proposal calls for payment within every 60 days for all family homes or residents living within the territory of the United States. The new tax is likened to a rebate.
The rebates are allowed on people falling within the poverty level. Many groups have rallied behind the approval of the new proposed tax law, Fair Tax Law. Specifically, Georgia’s Congressman John Linder. The Fair Tax reference had been published in 2005. The Fair Tax Proposal was one of the 2008 United States Presidential elections.
Specifically, the new sales tax pegs a 23 percent tax rate on all payments or received paid for in a grocery store, merchandise store, mall, restaurant, and other places where money or money assets are exchange for non-cash financial assets or creation of new liabilities. The proponents of the tax theorized that the new tax law, Fair Tax Law, will lessen the burden of the tax papers. The proponents feel that new tax law will translate to the adjustment of the federal tax.
As usual the proponents of the current tax law system insists that the government’s cash inflows will be significantly reduced by the implementation of the new tax proposal. In answer, the espousers of the new tax law insists that the new law will result to the increase in the tax base. The wider tax base will ensure a continued supply of taxes similar to the tax collections imposed by the current individual income tax and corporate income tax system.
The Arthur Laffer curve was named after Mr. Arthur Laffer. He popularized the curve during his regular classroom lectures. However, he proudly transfers the credit for his Arthur Laffer curve to the 14th century American Ibn Khaldun. Ibn Khaldun had explained the Laffer curve during the 14th century.
Arthur Laffer reiterated that Ibn Khaldun had explained the Arthur Laffer curve, under another name, explained to Muqaddimah and John Maynard Keynes during 1377. With the respect to the concept of the Laffer curve, the democrats believe that the current tax system will lean 45 degrees to the right. The democrats believe the rich of society should be taxed more.
The poor shall be taxed at a lesser amount. Also, it is a known fact that “the theory favored by the Democrats is the Keynesian theory put forward by the British economist John Maynard Keynes in the 1930s and 1940s. Keynes’ theory sought to manage an economy so as to keep it on an even keel and avoiding fluctuations in the business cycle – both the booms with their rising prices and busts (recessions / depressions) with their unemployment”.
The Republicans believe the current system is today? the republicans believe the current tax will lean 45 decrees to the left. The Republicans believe that taxes should be lowered to allowable levels.
Alberto Alesina (960) emphasized that “Different beliefs about the fairness of social competition and what determines income inequality influence the redistributive policy chosen in a society. But the composition of income in equilibrium depends on tax policies.
We show how the interaction between social beliefs and welfare policies may lead to multiple equilibria or multiple steady states. If a society believes that individual effort determines income, and that all have a right to enjoy the fruits of their effort, it will choose low redistribution and low taxes”
Stephan Paul (Paul 599) reiterated “international practice in the administration of tax regimes and the implementation of tax collection. It analyses claims by investors that particular state actions in tax administration and enforcement have violated various treaty rights, including the guarantee of fair and equitable treatment, restrictions on expropriation, and the violation of particular commitments covered by treaty umbrellas clauses.”.
The Ranaoke Article states most of the sections of the Fair Tax
A major provision of the FairTax is that no family should pay tax on its basic needs. This is assured by refunding to all legal families, in advance, the tax on all purchases up to the government-defined poverty level for each particular family. The refund is called a “prebate,” and Goodlatte acknowledges that it gives “a degree of progressiveness” to the plan”.
Benefits espoused by proponents of the Fair Tax proposal
Stephen Slavin (369) reiterated there are two benefits espoused by the Fair Tax Proposal. First, the poor’s tax payments are reduced with the presence of the prebate tax reduction. The tax payments will be less confusing. Second, the article offers lower tax rates over the current tax rates.
Two negatives espoused by critics of the Fair Tax proposal.
There is lack of transparency in the Fair Tax proposal. There are vague sweeping statements. Second, the government will receive lesser tax dollars. The lesser tax dollars reduces the states’ infrastructure and other programs.
Working Fair Tax proposal (for a national sales tax) would work
YES, the fair tax proposal for national sales tax will work excellently. The lower taxes will increase the taxpayers’ take home pay. The tax papers will have more money to invest in new business or buy products from other stores. In turn, the other stores will increase revenues. The other stores will have more money to invest in business investments.
The Taxpayer will have more money to invest in new businesses. The economy will increase because of the increase in the take home pay. This clearly shows that the Fair Tax Proposal will be a very good government gift to alleviate the people from the current economic depression enveloping the United States.
On what point of the Laffer curve, the Fair Tax proposal, if enacted by Congress, would place the tax rate slightly 45 degrees to the left. Similarly, the fair tax proposal will place us on the same upper left said of the Arthur Laffer curve. The taxes will be reduced to allowable levels. This is because the government is doing its best to reduce taxes to allowable levels.
Based on the above discussion, the Arthur Laffer Curve can be used to explain the effects of tax fairness. The Tax Fairness Proposal is grounded on the optimizing tax collection. Indeed, the Laffer Curve is another primary tool to ascertain the optimum tax rates.
Bibliography
Alesina, Alberto. A”Fairness and Redistribution.” The American Economic Review 95.4 (2005): 960-980.
Paul, Stephan. “Comparative Taxation Procedure and Tax Enforcement.” International Investment Law and Comparative Public Law 2010.10 (2010): 599-625.