Question:
Do Comparison between the Progressive and the Fixed Tax System.
The report proposes to discuss on the topic whether progressive tax system is seen to be fairer in perspective of a taxpayer in Canadian context in the province of Alberta. It also aims to find whether the amount of taxes paid by a taxpayer is appropriate given his or her income level. Some of the important consideration of the topic has been seen to be dealing with conceptualization of fair taxation system and discern which of the system will result in less overall taxes being paid by the taxpayer or whether the amount is appropriate with the given income level (Alm, 2014).
The main form of the scope and the limitation will be only based on the assessment of fair taxation system rather than the consideration of fixed taxation system. The various scope of the study is related to the Canadian taxation system regulations in the province of Alberta. The study will only examine the advantages and disadvantages of progressive and fair taxation system and also discern whether the amount of taxes paid by a taxpayer is appropriate given his or her income level and consider the amount of tax paid as per the same. The limitation in the research methodology will be only considered by the interpretation of secondary data through application of qualitative research techniques. Some of the other limitation has been based on the application of deductive research (Chiroleu-Assouline & Fodha, 2014).
Progressive Tax System Overview
Progressive tax system is identified as that taxation system in which the tax rate increases at an increasing amount. Progressive in general has been indented as the determination tax progression from low to high. The resultant consideration of taxpayer has been considered with taxpayer’s average tax, which is discerned less than the person’s marginal tax rate. The aforementioned terms may be applied with the tax incidence of people with a lower ability to pay, as the this shift may be a result of the ability of the people to pay from higher to lower ability of paying tax. The main form of the implementation of the term has been evident with personal income tax where the people have lower income percentage to pay rather than higher income. The adjustments of the tax base have been considered with tax exemptions, tax credits, or selective taxation system. Based on the Canadian tax system some of the main examples of progressive tax system have been discerned with property tax, sales tax on luxury goods, or the exemption of sales taxes on basic necessities. Some of the various types of the other consideration of the progressive tax can be seen with increasing tax burden for families with higher income group and reduction of the tax with the lower income group. The progressive tax system is recognised with the consideration of the various types of the factors which has been seen to be associated to the refundable tax. This particular form of the taxation has a direct impact on reducing the income inequality. In 2016, the individuals below $ 9275 of the taxable income need to make a payment of 10% on the income tax. The progressivity of a tax system has been seen to be based on the various types of the associated factor which has been seen with the direct related to the tax system as per the rise of tax with the income of an individual. One particular example of the progressive tax system is seen to be evident with the consideration with the various types of the associated factors has been seen to be related to the tax code following a lower rate of 10% and a high rate of 30%, and another tax code has income tax rates ranging from 10% to 80% (Lee, 2016).
Advantages
Progressive tax is conducive in reducing the income inequality and fairer way of taxation system. The main form of the benefit of the progressive taxation system has been considered with reduction in the income inequality. The income inequality has been considered with that segment of the population, which is seen to consider a larger share of the economy’s wealth in one particular segment. The fairer consideration of the progressive taxation system includes payment of taxes at a flat rate for those who will be able to earn as much are not required to pay as much back. In this procedure, the individuals will be able to get the most out of the systems supporting the same (Pántya et al., 2016). The biggest advantage of progressive tax has been is depicted with people who are earning more income and falling under lower income category. Hence, in this particular method the systems will be able to put lesser pressure on the lesser capable middle class of the population (Saad, 2014). The system is seen with the sense of satisfaction which has been considered with the distribution of the taxes as per the income of the individuals. Henceforth, the application of these types of the tax system will be able to ensure proper allocation of the tax in a country. Another significant benefit of the application of the progressive taxation system is based on the various type of the important consideration which has been seen to be associated with the direct relevance of the several of the factors which needs to be evaluated as per the increasing nature of the taxable base (Saez, 2013).
The main form of the advantage of the progressive tax has been seen with reducing the tax burden with the individuals who will be able to afford the same. These systems will be able to leave money among the low wage earners and those who will be able to stimulate the overall economy. The different types of the progressive tax systems will be having the ability to collect more amount of tax than the flat taxes along with the various types of the regressive taxes. The tax rate is seen to be increasing with the increment in the income, the progressive taxes are able to allow the people with the highest amount of the resources to a greater portion of the services to all the people and business with first responders and snow removal (Doerrenberg & Peichl, 2013).
Disadvantages
The main form of the disadvantage of this type of the taxation system has been seen to be based on the various types of the important consideration which has been related to the factors related to punishing those individuals working hard and earning money in a particular way which discourages people for work as there is not added incentives for the people having higher income and the earning sufficient amount of money. Another significant limitation of the tax evasion system takes into account with cases of tax evasion and rich people who will be able to exploit the possible means of paying less tax (Mustapha & Obid, 2015). Henceforth, this system shows that the tax payers are more prone to evade taxes. Another significant form of the disadvantage of the progressive taxation system is based on the varied factors which has been associated to the different types of the issues related to the scope of the manipulation of the tax and hence in this system the individual are not able to maintain an uniform tax rate. In several types of the other occasion the different types of the factors for the payment of the tax as per the progressive system of the taxation is seen to be related to dependent and subjective as the personal opinions given by the tax officials (Bacher & Brülhart, 2013).
Fixed Tax System Overview
Fixed tax is discerned as a lump sum amount of tax which has been seen to be based on the consideration of the various types of the factors related to the measurement of the taxes as a percentage of the taxes as per the tax base. Fixed taxes are considered as poll or sin tax which are often seen to be considered as regressive in nature. As the citizens are able to share a common road, protection of military, policing and varies types of the other factors related to the different factors other than government, some of the individual, are seen to be of the opinion that the consideration of the fixed taxation system should include the citizen to pay for basic infrastructure (Isa, 2014).
The fixed form of the taxation system has been based on the various types of the consideration associated to maintaining a constant marginal rate and usually seen to be applied to individuals with specific corporate income. The true form of the foxed taxation system has been discerned to be based on the varied types of the consolation which has been seen to be based on the deductions made as per the majority of the existing deductions made in the taxation system. The consideration of the charitable deductions is seen to be based on the varied types of the factors which has seen with charitable deductions and in several types of the occasions the consideration of the flat rate of eh taxation system has been considered with home mortgages. This particular factor has been discussed as per the various types of the consideration of the fixed taxation system which will be able to eliminate the various types of the existing deductions to simplify the taxes (Heinemann & Kocher, 2013).
Advantages
The main form of the advantage of the fixed taxation system has been seen with the simplicity component. The varied type of the other factors related to the consideration of the flat tax system has been included for the ease of computation by the internal revenue service and straightforward payments from taxpayers. The flat form of the tax has is seen to be considered with various types of the significant factors which has been seen to be related to the consideration of the taxes with a single source of income. This makes the report easier to understand. The different type of the other consideration of the taxation system is based on factors related to the elimination of double taxation. The concept of the flat taxation has been considered to be popular for the purpose of the varied types of the other factors which has been seen to be taken into account with different factors which is directly seen to be associated to the implementation of the present IRS regulation (Azrina Mohd Yusof et al., 2014). This particular system of the taxation has been able to eliminate the varied type of the factors for eliminating death tax and capital gains in addition to the double taxation. The flat system of the tax includes the various types of the factors which have been seen to be related to the differed types of the consideration for elimination of the unnecessary payment of interest and dividend at individual levels. The flat rate of the taxation system is able to eliminate the different the factors which has been seen to be associated to global tax system at a global scale on long-term basis. The varied type of the consideration for the fixed rate of the taxation system is able to take into consideration the fairness factor. For instance a taxpayer making $ 5000 is seen to earn $ 500000. The tax payer making a payment of $ 500000 has been able to simple consider greater income with the percentage of income made by an individual (Mookhey, 2013).
Disadvantages
The opponent of the fixed rate of tax system has been able to discern that the low income segment of the population has been seen to be considered with the lower amount of the payment of the taxation has been seen to directly associated with the individuals with lower income. The various types of the negative aspects of the fixed taxation is associated to the different type of the families of lower income group need to consideration of the expenditure of the same amount as with the individuals having higher rated of income. IRS implementation is taken into account with imposing numerous trained personnel’s in the fixed rate of the taxation system. Several individuals are seen to believe that the flat rate of the taxation system has been seen to reduce the overall tax and the actual form of the tax benefitted from the same. The tax rate is taken onto consideration with those individuals who are directly seen to be associated to the several form of detrimental factors such as inequity in the economic system (Liu, 2013).
Based on the several types of the considerations of the progsressive and the regressive taxation system it has been seen to be discerned that the fixed system of the taxation has been seen to be evident with entities with low income that needs to consider a payment of higher amount among the higher income group. The consideration of the progressive taxes has been seen to be evident with present federal income tax in the U.S. and Alberta province of Canada with a particular proportion of tax liability, which is seen to increase based on the individual income level. The various types of the consideration related to the tax burden consider high income earners among the lower or middle income group of people. The consideration of the progressive taxation system is seen to be based on present taxation system followed in Canada. In this system the tax burden increases with the increase in income of the entity. The rationale for the shift from flat taxation to progressive taxation has been discerned with the fact that Albertans wanted higher taxes at higher income levels. The people who can afford to pay the little extra amount should be only included in the higher tax slabs. The government introduced a new “health-care contribution levy” applied on progressive basis to individuals having annual income of more than $ 50000. In case of the flat taxation system the tax payers would have to still bear this levy, which was not favoured by many individuals. After the introduction of progressive taxation, individuals with more than $100,000 annually and $250,000 annually, experienced an increase of 0.5 percentage points in each of the next three years. This will lead to an overall increase of 11.5% by 2018 (Saad, 2014).
Conclusion
The main depictions of the study have been able to reveal that progressive taxation system is considered to be fairer than fixed taxation system. In case of fixed taxes, individuals and entities with lower income often need to pay a higher amount of taxes as compared to the individuals with high income. The implementation of the tax liability as per the ability to pay has been more prominent under progressive taxes. In case of progressive tax, proportion of tax liability is seen to increase based on individual level of income. Some of the other recommendation for the progressive tax has been done with inclusion of gross receipts, per capita taxes and occupational taxes. The income and profits are considered as per progressive or increasing tax rate schedule. The Marginal tax rates are often considered with payment of average tax rates. Based on the discerned assessment taxes paid by a taxpayer is appropriate given his or her income level in the province of Alberta in Canada. The main rationale for this is mainly due to the adherence of progressive taxes in province of Alberta in Canada. The main reason for the shift from flat taxation to progressive taxation in Alberta province has been discerned with the fact that Albertans wanted higher taxes at higher income levels.
References
Alm, J. (2014). Does an uncertain tax system encourage “aggressive tax planning”? Economic Analysis and Policy, 44(1), 30–38. https://doi.org/10.1016/j.eap.2014.01.004
Azrina Mohd Yusof, N., Ming Ling, L., & Bee Wah, Y. (2014). Tax non-compliance among SMCs in Malaysia: tax audit evidence. Journal of Applied Accounting Research, 15(2), 215–234. https://doi.org/10.1108/JAAR-02-2013-0016
Bacher, H. U., & Brülhart, M. (2013). Progressive taxes and firm births. International Tax and Public Finance, 20(1), 129–168. https://doi.org/10.1007/s10797-012-9218-z
Chiroleu-Assouline, M., & Fodha, M. (2014). From regressive pollution taxes to progressive environmental tax reforms. European Economic Review, 69, 126–142. https://doi.org/10.1016/j.euroecorev.2013.12.006
Doerrenberg, P., & Peichl, A. (2013). Progressive taxation and tax morale. Public Choice, 155(3–4), 293–316. https://doi.org/10.1007/s11127-011-9848-1
Heinemann, F., & Kocher, M. G. (2013). Tax compliance under tax regime changes. International Tax and Public Finance, 20(2), 225–246. https://doi.org/10.1007/s10797-012-9222-3
Isa, K. (2014). Tax complexities in the Malaysian corporate tax system: minimise to maximise. International Journal of Law and Management, 56(1), 50–65. https://doi.org/10.1108/IJLMA-08-2013-0036
Lee, K. (2016). Morality, tax evasion, and equity. Mathematical Social Sciences, 82, 97–104. https://doi.org/10.1016/j.mathsocsci.2016.05.003
Liu, A. A. (2013). Tax evasion and optimal environmental taxes. Journal of Environmental Economics and Management, 66(3), 656–670. https://doi.org/10.1016/j.jeem.2013.06.004
Mookhey, S. (2013). Tax disputes system design. eJournal of Tax Research, 11(1), 79–96.
Mustapha, B., & Obid, S. N. B. S. (2015). Tax Service Quality: The Mediating Effect of Perceived Ease of Use of the Online Tax System. Procedia – Social and Behavioral Sciences, 172, 2–9. https://doi.org/10.1016/j.sbspro.2015.01.328
Pántya, J., Kovács, J., Kogler, C., & Kirchler, E. (2016). Work performance and tax compliance in flat and progressive tax systems. Journal of Economic Psychology, 56, 262–273. https://doi.org/10.1016/j.joep.2016.08.002
Saad, N. (2014). Tax Knowledge, Tax Complexity and Tax Compliance: Taxpayers’ View. Procedia – Social and Behavioral Sciences, 109, 1069–1075. https://doi.org/10.1016/j.sbspro.2013.12.590
Saez, E. (2013). Optimal progressive capital income taxes in the infinite horizon model. Journal of Public Economics, 97(1), 61–74. https://doi.org/10.1016/j.jpubeco.2012.09.002
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