Recently, American citizens have witnessed a tendency of rising taxes (Blodget 1). This issue of rising taxes seems to have gained momentum, especially after the financial recession of 2008. Today, many Americans are concerned about the increasing tax levels. The issue of huge taxes has led to declining disposable income, forcing many consumers to struggle in their daily lives.
If one was to interview many Americans on the issue of taxes, there are high chances that many of them will respond by highlighting their deteriorating living standards resulting from high taxes. This paper will discuss the issue of high taxes and its effect on American people.
The direct impact of high taxes on households would be low purchasing power, which leads to a reduction in consumption levels, as well as accumulation of debts as household seek alternative source of funds to support their livelihood. On the other hand, high taxes affect businesses, as they eat into the firms’ profits, significantly reducing net earnings that could be used in expansion of business or new investments. As a result, the whole economy tends to suffer, as demand decreases significantly.
Therefore, there is need for government agencies responsible for tax regulation to initiate tax reforms and policies that would be beneficial to all the stakeholders in the economy. Moreover, given that the taxpayers are directly affected by the tax system in place, it is important that the system should be equitable, accommodative, and fair to all stakeholders.
High taxes have a negative effect on the growth of the economy. For example, high taxes lead to low net incomes despite the efforts made by people to earn such income, thus eroding motivation from people who then become less productive (Cohn 1). In addition, high taxes tend to increase operating costs for businesses, and since the businesses have to make profit, they may decide to increase the price of finished products or lay off some employees in order to cut costs.
The effect of expensive finished products is felt by consumers. Indeed, the consumers are affected twice by increased taxes, first through reduced income and then through increased commodity prices. The general effect of this tax increment is reduction in purchases, which then leads to reduction in supply as firms reduce production to match demand. Finally, the overall economic activity in the country declines, thus affecting economic growth negatively.
Although the above points call for reduction of taxes for the benefit of consumers and investors, some scholars believe that low taxes are not beneficial to the economy. They state that, taxes are used by government to finance public goods, which are essential for the welfare of citizens (Cohn 1). Therefore, low taxes will make provision of welfare goods by the government difficult, thus deteriorating the general economic conditions.
Moreover, the government will be forced to cut budget for public goods such as healthcare, education, transport, security among others, which are essential for all citizens, the result of which will be a decrease in social welfare of the society (Cohn 1). Therefore, the issue of enacting reforms to reduce taxes to manageable levels for majority of Americans is considered not to be the best option by this school of thought.
There are numerous avenues through which this issue of high taxes can be tackled and bring relief to majority of Americans. As the situation stands now, many businesses are either closing down due to high taxes or moving to other countries where taxes are affordable. The result is the increasing unemployment as job opportunities decline. Moreover, as businesses relocate, government financing declines, leading to collapse of various programs and reduction of wealth creation in the country.
The government should therefore initiate a policy that encourages investment and wealth creation. Such a policy would ensure that the taxes applicable to various business classes are equitable and fair so that the businesses are able to operate profitable. When this happens, numerous companies willing to leave will be enticed to stay and participate in wealth creation. The establishment of more indigenous industries will provide employment for many Americans, enabling the many consumers to possess more income after paying taxes.
What the government will do is that, instead of concentrating high taxes on a particular segment of population, it should spread the tax bracket across a wide group, making it possible to reduce taxes as more people become eligible to pay taxes. The government should also reform its spending pattern for effective implementation of tax system by prioritizing the most important programs. Indeed, this will largely reduce the deficit and enable the economy to recover.
Another area that the government needs to address is the American property industry. According to Tuttle (1), property taxes have skyrocketed recently, forcing investors to shy away from the property industry, or even relocating to other industries or countries.
Moreover, as property taxes increase, property prices including rent increase, thus affecting consumers and small businesses. Indeed, small businesses are the main drivers of the economy, therefore, when they are faced with expensive properties, they tend to relocate, leading to unemployment and reduced trading activities.
When this happens, the impact is huge and evident in key aspects such as reduction of employment opportunities, increase in number of unemployment benefits, and little contribution to national tax kitty. Therefore, it is prudent for effective and efficient property tax reforms to be enacted.
The issue of raising tax for the rich and middle class population is very sensitive to the economy. Generally, a rise in taxes creates an immense burden to larger American society. The society cannot progress at an accelerated speed if high taxes persist, as this tends to push investors and rich people to other regions.
As investors move away from the economy, employment opportunities reduce, while at same time, taxes reduce leading to low production of social welfare programs that cannot adequately cater for the whole population. Therefore, given the immense negative effects that high tax are imposing on the nation, there is need for establishment and implementation of a comprehensive tax reform framework that is more business friendly.
Increased business activity contributes to growth of the economy, as more people are able to earn incomes, thus entering into tax bracket. In this case, distribution of tax pay will be more even and widespread, thus allowing government to reduce tax rates while at the same time collecting enough to finance social programs.
Therefore, instead of just fixing eyes on the tax movement, it would be advisable if necessary steps were undertaken to stimulate economic growth, reduce government spending, and exploit more energy resources available in the country, which will subsequently contribute to economic growth, hence pushing taxes down.
Works Cited
Blodget, Henry. “The truth about taxes: Here’s how high today’s rates really are”. Business Insider, 2011. Web.
Cohn, Jonathan. “Can we tolerate higher taxes? Heed the Swedish chef.” The New Republican News, 2011. Web.
Tuttle, Brad. “7 Odd solutions for 7 common economic problems”. Times Financial Insight, 2011. Web.