Taxes may also be a measure of stabilization of state fiscal policies impact on the economy. Taxation should in no way impede the economic development or have a negative effect on it. Too high taxes or wrong system of taxes may harm the economy. Taxation should help create new jobs, constantly strengthen and expand the country's economy, contributing to income and wealth redistribution. Therefore, when developing tax laws and economic policy it is very important to consider main points: what, how and from what sources those taxes will be paid, what is the taxpayers financial capacity, will taxes not be an unbearable burden that will slow the progress of the entire economic development.
Although government spending has the potential to stimulate the economy, this essay will explain why the opposite outcome is more likely to result in the short-term. It will be shown, by analyzing the flow of money and the economies of certain countries, that government spending has little economic benefit and does not create new jobs. Nonetheless, in the right circumstances, government spending can prove beneficial to the long-term economic growth of a country. Before the government can spend any money, it must first acquire that money. A government’s two options is either to increase taxes or to redistribute money from within, from one department to another.
The main goal of fiscal policy is to generate economic growth and maintain the nation’s stability. There are many challenges that offset the fiscal policy. As the government continues to increase its spending and does not raise taxes, it borrows more money to finance its spending causing a greater deficit. There is also the direct expenditure offset that occurs when an increase in government spending will compete with the private sector in that same area. Time lag is also an issue with the fiscal policy.
In the short-run, the relationship between unemployment and inflation is inverse. This means that the change in one will have the opposite effect on the other. So here, a fiscal policy aimed at reducing unemployment will increase the interest rate. For example, if Bartavia decides to lower taxes to increase consumption thru use of consumer’s marginal propensity to consume, and the economy in general thru the multiplier effect, it will increase the aggregate demand for goods and services. Marginal propensity to consume is the idea that that consumers will spend more money if they have more, but increases in income do not lead to equal increases in consumption because people save some of the money.
Hence, canons of taxation are used by the governments to collect and impose taxes. The process of taxation increases government income but there is also a downside to it. The government’s investment might be affected in a negative way. A balanced strategy should be developed by the government before the socioeconomic activities in the country are badly affected by the aftereffects of taxation.
Whether they believe that the tax rate is too high or too low, there is always something to gripe about. The best policy to aid an economy’s recovery or give it an additional boost in boom times is always a tax cut. This can be engineered either as a straight up tax cut or as a rebate to taxpayers. Both methods leave more money in consumers’ and companies’ coffers, allowing them to spend more freely. This additional money in the economy causes a greater demand for goods, which in turn drives companies to produce more products.
In Your Taxes, Johnson David Cay says, “While income tax policy remains a hotly debated political topic, most Americans agree that the system should be designed so that wealthier citizens pay a higher percentage of their income, a system known as a progressive tax system” (Para. 3). Cay agrees that wealthier citizens should pay high... ... middle of paper ... ...dle class and the wealthy America can begin to move on forward to an enterprise country. The middle class can begin to live instead of trying to survive from paycheck to paycheck, which will benefit them greatly. Both parties would be happy.
Capitalizing these costs also increases their income, increasing the amount of taxes they have to pay. Thus, the IRS encourages capitalizing costs whenever there is a question as to what method to use. Originally the taxpayer had more of an advantage because the ruling was left open to much interpretation and the IRS was rather lenient concerning the future benefits. The Supreme Court just said that determining future benefits is undeniably important in determining whether a future expense should be capitalized. There have now been rulings where the IRS has become more aggressive in dealing with future benefits.
However, with gasoline, forecasting consumption is difficult because you do not know when the price will change, when the consumers will resort to use a substitute product or when the supply will go down. This presents the government with financial planning challenges which can be easily eradicated with a more certain taxation system such as the income tax. Government planning is very crucial when it comes to economic and social development. Inadequate planning can have serious economic effects on the society. Therefore, with the new system in place we not only face a taxation challenge but also an uncertain economic ... ... middle of paper ... ... of wealth, the current tax system is fair.
Secondly, current system tends to limit an individual’s ability to engage such savings in diverse investment platforms that would lead to an improvement in their returns (Idemoto 1). On the contrary, current system gives exclusive investment rights to the government. Thus, privatization will offer individuals an opportunity to have control over their investments and investment portfolio diversification on their savings. Smart investments by individuals will yield higher returns. There is a general ideation that the investment market will continue to grow in a near-exponential trend.