US Tax Reform

In the year 2005, US tax reform had occupied the center stage of the economy. The US President had also announced that he was looking forward to bring about certain changes in US tax reform. Over the years, the country has witnessed several phases of tax reform. The importance of the concept of hybrid reform is being increasingly felt by some in the country.
There are many factors, which have impacted US tax revenues in various ways. These include the “baby boomers”, who retired or would retire in due course. In the event when they retire, they too would have to be given funds as per several schemes they have enrolled for pertaining to retirement solutions. Owing to the alternative minimum tax or AMT, it was feared in the year 2005 that the tax payers would have had to pay taxes at a higher rate.

To top it all, issues related to national debt as well as federal deficits also needed attention.

The President declared that US tax reform would be such that it would bring about the following three principles in the taxation system of the United States of America.
Growth in the economy
Simplifying the taxation process in the country
Fairness or Impartial process of taxation
In addition to the above, the US tax reform was required to be neutral. The tax payer ought to be aware of the the laws governing the tax payment requisites. Transparency, cost effectiveness, convenience in making payments are some of the other factors, which need to be taken into consideration when restructuring US tax policies leading to reforms.

There are few taxes, which have been identified as alternatives to consumption tax in the country. A value added tax or VAT (credit invoice), retail sales tax, the single rate consumption tax, personal consumption tax. Even though some of the taxes may appear to be the same there are marker differences between them. It has been observed that income tax and consumption tax differ from one another with respect to the effect they cause on the following:

The manner in which the taxes are distributed among the working class; export activities as well as import activities; growth in the economy of the country, investment, savings; pertaining to tax governance.

It is seen that while income tax is more progressive in nature, the consumption tax contributes to the growth in the economy and the process of taxation involved in this type is also quite simple. Nevertheless, the applicability depends on variations.

Some feel that the US tax reform ought to be such that it is a welcome mix of both the types of taxes- income tax as well as consumption tax and hence the implementation of the “hybrid concept”. However, there are few areas, where there is a overlapping of the income tax as well as consumption tax in the United States of America.

It is also seen that due to changes in the taxation system, certain apprehensions arise. Certain norms need to be implemented, which would protect consumers and lead them to the path of transitional phase without the necessity of shelling out extra fund during the transformation.

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Last Updated on : 26th June 2013

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