ASSIGNMENT 1 6
Everyeconomy has a way that it uses to generate incomes that would beutilized in funding the government programs such as security, health,military, and infrastructure among other matters (Tucker, 2016).Therefore, the means of obtaining revenues is an importantconsideration. In case the governments do not have an approach thatthey can use to yield satisfactory returns, it is likely that theywould not be in a position to perform the duties that they shouldcarry out adequately. For instance, in case a government does notobtain sufficient revenues, it may not be capable of providing someservices such as security with keenness. Since personal income taxprovides a lot of proceeds to the U.S. government, which is used infinancing the government costs, it is questionable whether the U.S.government can be in a position to operate without the personalincome tax. This report will analyze how one country offers servicesand benefits to its citizens without the collection of personalincome tax. Then, from the nation’s abilities to provide serviceswithout relying on the income tax, I will establish whether U.S. canadopt the model of taxation used by the country without reducing itstotal revenue generated through the collection of personal incometaxes from individuals and businesses.
Personalincome tax is a form of direct tax that is levied on the income of aperson. In this case, a person may be considered to imply anindividual, a non-juristic body, undivided estate, or an ordinarypartnership. This type of tax is usually paid annually to thegovernment, depending on the calendar year of the government. Thepersonal income tax emerges as a critical form of tax to thegovernment since it is a key source of revenue to the government(Robert, 2003). Most of the governments around the globe are in aposition to pay for their expenses using the funds that are collectedfrom the income tax. In the United States, this is not differentbecause the federal government plays a critical role in enacting theincome tax and the subsequent rates which help the government inraising proceeds that are used in financing the expenditures of thegovernment. However, this is not the case in other countries.
Oneof the countries that provide benefits and services to citizenswithout the collection of personal income taxes is Oman (Askari etal., 2013). In order to be able to offer services and benefits to thecitizens, the nation depends on its broad petroleum reserves as wellas natural gas for the generation of revenues (Askari et al., 2013).As a source of proceeds in the country, oil and gas accounts forapproximately 50% of the Gross Domestic Product (GDP) this is around90% of the total incomes of Oman. Despite the government not imposingincome taxes, sole proprietors are subjected to a tax which is at therate of 12% for profits that exceed RO 30,000. Furthermore, citizensare required to pay 6.5% of their monthly earnings towards the socialsecurity benefits. On the other hand, the nation does not levy estatetaxes, gift taxes, net worth taxes, and value added taxes. From this,it is apparent that Oman does not rely on the income tax as itsprimary source of revenue.
Thetax system that a given nation adopts is usually determined bydifferent factors such as the public service needs of the country,the ability to administer taxes, and the economic structure amongother factors (Caldewell, 2008). The United States would facedifficulties in adopting the tax system model of Oman, which is notdependent on the income tax. One of the chief reasons why the UnitedStates cannot be in a position to adopt the tax model of Oman isbecause it does not have large masses of natural resources, which itcan utilize in generating a lot of revenues, that would be adequatein providing services that are socially desired by the citizens. Evenif the government of the United States decided to generate proceedsfrom its natural resources, it would still face insufficiency incovering the expenditures of the government.
Abenefit that would emanate from a zero-income model is that allcitizens would be treated equally, where they would receive levy-freesalaries. This implies that there would be satisfaction with thecountry’s income tax since the remuneration received would not haveany toll attached to it leading to increased production (Tucker,2008). The rationale here is that due to lack of attaching any taxto the earnings, people and businesses are likely to have theincentive to work more so as to have an opportunity of gaining more.This would automatically result in an enhanced productivity. Anotherbenefit is that citizens would be willing to spend more inconsumption since their earnings would be higher without the taxes.This would be critical in stimulating the economy. The underlyingprinciple here is that when the income is not taxed, consumers wouldhave a lot of resources at their disposal, which would prompt them touse huge amounts for consumption purposes. This would be crucial tothe economy since there would be a flow of resources from one partyto another.
Onthe other hand, in case the U.S. adopts the zero-income tax approach,it will not be in a position to generate revenues that are equivalentto the returns it generates from personal income taxes. This wouldresult in a vast budget deficit, which implies the move is notappropriate. This disadvantage is based on the argument that personalincome taxes have the ability to give an economy an easy task ofcollecting revenues since individuals and businesses can be tracedwith less efforts. Furthermore, through the zero income, it would notbe feasible for the government to hit revenue targets since it wouldbe hard to discover people that do not contribute other forms oftaxes.
Incase the U.S. government was to adopt a zero income tax model,revenues may become generated through the sales tax. Sinceconsumption is a must, a sales fee would ensure that individuals paylevy according to their incomes (Murray, 1997). This implies thatthere would be no need for tax exemption. The federal governmentshould design the VAT that is to be adopted at the national levelthis should be based on the broadest consumption base. The tax base,in this case, would be the quantity of goods and services that anindividual buys. In order to ensure that the same level of taxrevenue is collected, the IRS should ensure that the sales tax rateis sufficiently high to be capable of raising the same level ofreturns. The sales tax should have a uniform rate. Throughstandardized taxation, equity will be ensured in the system.
Incase, the federal government realizes that there are shortfalls whenit fails to collect its targeted revenue from personal income taxes,the government may borrow domestically through the issuance of bonds.The revenue collected from the provision of the bonds can be used infacilitating the shortfall in the revenues. When issuing the bonds,the government will adhere to the fiscal and monetary policies sinceit will have to follow the interest rates that are provided for inthe policies.
Inconclusion, personal income tax can be viewed as a significant sourceof revenue for the U.S. government since it generates enormousproceeds that are utilized in funding various services provided bythe government. If U.S. were to adopt a zero income tax, it wouldneed an alternative source of its incomes. In such a case, it mayconsider using sales tax in the generation of proceeds from thepublic. In case it fails to realize the target, it may solicit fundsfrom the masses through the sale of bonds. Therefore, it can beargued that the United States has the possibility of adopting thezero personal income tax in case it is in a position to use othermeans of generating revenue. However, the approach that thegovernment applies has to have the ability to gather adequate incomesthat can help in funding different services supported by thegovernment.
Askari,H., Cummings, J. T., & Glover, M. (2013). Taxationand tax policies in the Middle East.Burlington: Elsevier Science.
Caldewell,T. B. (2008). Taxation:21st century issues and challenges.New York: Nova Science Publishers.
Murray,M. N. (1997). Thesales tax in the 21st century.Westport, Conn.: Praeger.
Robert,W. M. G. (2003). ThePhilosophy of Taxation and Public Finance.Dordrecht: Kluwer Academic Publishers Group.
Tucker,I. B. (2008). Surveyof economics.Mason, OH: South-Western Cengage Learning.
Tucker,I. B. (2016). Macroeconomicsfor today.Mason: Cengage Learning.