Personal Income Tax is the amount of money received by the government from a person’s income. It deals with the taxation of the individual’s total earnings and is charged progressively (Cordes 296). The person being taxed is in a business that either involves partnership, sole proprietorship, undivided estate or a non- juristic entity. However, the disadvantages of a personal income tax seem to have more weight compared to the advantages. In addition, there is a liability to a personal income tax and the responsible tax paying entity must compute, file and pay tax as per the rules of the state.
Arguments for Personal Income Tax
The Personal Income Tax uses progressive taxation and allows for a wealth distribution (OECD 38). It is directly proportional to income earned because a person earning 10000 US dollars is charged more than the one earning per 1000 US dollars. In addition, the system is more equitable compared to the consumption tax. For instance, it allows for reduced taxation on important goods like vehicles, giving low earners the privilege of low taxation. Furthermore, the tax method is important since the poor people make the majority of the society. It also helps in the regulation and control of the corporate and personal profits. For instance, tax policy makers prevent greedy corporations and unscrupulous individuals from earning illegally, by forcing them to account for their money.
The taxation method allows the government to enjoy a reliable income stream (OECD 38). For instance, in scenarios where there is 15% unemployment, 85% of the population give income to the government. The system allows the state to stabilize its income stream even during a depression. In addition, the taxation system supplements the expenditure tax in the superior infrastructure development.
Individual-based income taxation is easier compared to a situation where the individual decides about the kind of deductions to be processed (OECD 39). The pay slips used are few and easy to analyze, which is contrary to consumption tax where people have to save all the annual purchase receipts to quantify their tax. However, personal income tax is more flexible because it gives people an opportunity to claim tax return deductions such as child care expenses and property losses.
Arguments against Personal Income Tax
Personal income tax implementation is very complex, especially when used to regulate corporations and the wealthy people in the society (Shome 149). It also entails the use of several resources to put in place of a system that controls and monitors the entities. In addition, the government is forced to use vast resources to enforce the tax code in each line. For instance, in the USA, the IRS needs an approximate of ninety thousand tax accountants. The tax audit industry and the IRS may be of more value economically, if they were to handle other issues.
The accountants, in the personal income tax, consult wealthy and big corporations on how to address the loopholes in tax policies. In return, the entities that ought to be the major tax issuers, turn to be the opposite. For instance, the wealthy in the society can afford expensive tax consultations, but use the opportunity to deceitfully avoid and evade taxation. Consequences are that there are inequitable taxations because employees are charged more than their bosses in such scenarios.
The Personal income tax can lead to financial hardships among the low income earners in the society regardless of the amount deducted. The phrase ‘lower deductions’ is relative and, therefore, might be a huge sum to some of the low-income earners. For instance, an individual who tries to make a living on a day-to-day basis, may find it difficult to have an average lifestyle, following any deductions on his or her income (Shome 149).
Personal Income Tax tampers with the citizen’s financial freedom since it dictates how the money should be used. It decides what to deduct despite the consent of the income owner, thus becoming a dictatorship model. In addition, it can be seen as a policy against the rich and favoring the poor in the society. The Personal Income Tax also reduces the moral of the citizens who might need to work hard with its progressive nature. It makes some of the citizens feel the act of paying taxes as burdensome and in the process become less productive. This leads to a fall in the economy due to fall in productivity. However, Laffer curve can be used to explain the trade-off between tax revenue and work (Shome 150). The people being paid through cash-at-hand method can evade taxation. Income taxation is, therefore, only effective when dealing with the formally employed.
In conclusion, if I were a legislature I would vote for the adoption of the income taxation in my state. The primary reason is that the state needs resources to be able to progress. Furthermore, income tax provides an opportunity for a stable revenue source. In addition, the fact that the public cannot decide on when to pay the amount, makes the source reliable.
Works Cited
Cordes, Joseph J. The Encyclopedia of Taxation & Tax Policy. Washington: Urban Institute Press, 2005. Print.
OECD. Fundamental Reform of Personal Income Tax. Paris: OECD, 2006. Print.
Shome, Parthasarathi. Tax Policy Handbook. , Washington: Tax Policy Division, Fiscal Affairs Department and IMF, 1995. Print.