Tax Reform: Why you should care

PwC believe there is a clear need for comprehensive Tax Reform — done the right way. The ‘right way’ means increasing those taxes that have the least effect on investment and employment, and at the same time reducing reliance on taxes that distort incentives to work, invest and transact business. It also means addressing those factors which increase the complexity of the tax system and the cost of compliance.

This is an issue that will not go away. As part of a broader community discussion about the challenges Australia faces, we need an informed and intelligent conversation on tax. Leaders of civil society, business, unions and the public policy community must drive this conversation if we are to realise the benefits across all parts of society. The overall objective is twofold: economic growth, and enhancing the well-being of the Australian public.

For more information visit: http://pwc.com.au/taxreform

Duration : 0:1:59

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Is this a good tax reform plan?

Eliminate the Income Tax
Lower the Corporate Tax to 15%
Have a tax on all imports at 15%
Have a national property tax at 15%
Have a 15% consumption tax
Is this a good Tax Reform plan?

No.

1. Many corporations pay less than 15% now, so you wouldn’t really be lowering their tax; you’d be raising it.

2. It would not bring in enough money. The national debt would increase and millions of government employees would lose their jobs.

3. The poor would not be able to afford to pay a 15% consumption tax and pay for food, housing, etc., so they would have to go on food stamps, welfare, etc., which would cost the government more than they were paying in taxes.

4. Most critically, the 15% import tax would violate international agreements, and force every other country in the world to prohibit imports of anything made in the U.S. This would mean, first, that U.S. exports would drop to zero, and, second, that only things that are used only in the U.S. could be made in the U.S.; anything used in more than one country could no longer be made in the U.S. (because what was used in the other country could not be made in the U.S., and it’s not cost-effective to make the thing in two different countries).

In conclusion, it wouldn’t really matter that you eliminated the income tax, because almost nobody would have an income. Nearly all jobs depend, directly or indirectly, on either (a) the existence of an income tax, so that the government can spend in ways that create jobs, or (b) the export of U.S. products to countries that won’t all imports from a country with a 15% import tax.

The Economics of Tax Reform: Lessons from the Donut Shop

What can a donut shop teach us about tax reform? Maybe quite a bit. Would the federal government have all of the money it needed if Congress just kept raising taxes? Possibly, but after a while, higher tax rates would actually bring in less money for the government. The same is true of a business. If you were making a little bit of money selling donuts at $1 a piece, would you make 300 times as much money by changing your price to $300 per donut? Probably not.

When it comes to evaluating tax changes, the most common way is to assume that no matter how different the tax code is in the future, the economy will continue to behave as if nothing had happened — Americans will keep working and investing in the exact same way. Using this “static,” or unchanging, view of the economy, however, gives us a distorted idea of what the future is going to look like.

The Tax Foundation uses a sophisticated economic model to measure the dynamic effects of tax policy changes. We believe that this approach gives lawmakers a more realistic picture of the effects of tax changes on the economy and federal finances.

Video script:

Imagine that you own a sweet donut shop.

And say you sell 100 donuts every day at $1 each. You’d make $100 a day, right?

Now say you raised the price of your donuts to $5 each. Would you make $500 a day?

Maybe.

But maybe people wouldn’t buy as many donuts at five dollars each.

So what if you lowered the price of the donuts to fifty cents each?

Yes, you’d make less money per donut, but you’d probably have a lot more customers.

Seems like a simple part of economics, right?

Well, simple or not, it’s not how the government views taxes.

Whenever Congress is trying to calculate how much money they’ll get from taxes, they use what some people call, ‘Static Scoring.’

That means that according to Congress’ estimates, every tax cut means lost revenue.

And every tax hike means more money for the government.

Which isn’t always true. Just like every increase in the price of donuts doesn’t mean more money for the donut shop.

After all, who’s going to buy a $300 donut?

All of this matters because, in a weird way Congress’ over-simplified model is holding us back.

Because if you don’t estimate the economic effect of taxes, you can’t make good policies.
Well, there IS a better model. But Congress isn’t using it.

A Dynamic scoring model focuses more on economic growth.

A Dynamic model calculates the broader effects of tax policy on the things that produce economic growth — such as how tax policy affects the cost of labor and the cost of capital investment.

Higher taxes on labor means fewer jobs at lower wages. Lower taxes on labor mean more of those jobs at higher wages.

Higher taxes on capital such as buildings and ovens mean less investment in those things

And lower taxes mean more.

So what?

Well, more capital and more labor mean more growth and better living standards for American families.

And after all, isn’t the point of Tax Reform to grow our economy so Americans can have more opportunities?

Critics of dynamic scoring resist it because economists don’t always agree on the details.

But isn’t trying dynamic scoring better than using a model we know is wrong?
After all, this isn’t a donut shop, we’re talking about.

It’s our country.

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Considering one of the benefits of being a US corporation is protection by US government/military?

Shouldn’t corporations still have to pay corporate Income Tax on their foreign earnings, even after corporate income Tax Reform? Even if its just10-12%?

I’m not an expert on out-of-country business tax structures, so I couldn’t say for sure. It does seem like a sensible idea, in general, however. I know when I worked overseas, I had to pau U.S. taxes on my earnings abroad.

Is Obama throwing conservatives a bone or waving an olive branch for tax reform over the IRS case?

On the IRS issues, Obama is waving an Olive branch in your faces saying we need tax reform. The Middle Class is taking a beating from Corporate cronies like under Bush. We can’t have that anymore. Did you see how Obama Taxes the rich? But Republicans made him tax the middle class more too.

Conservatives love the tax code because it favors corporations. Liberals want the rates to inflict payment from the wealthiest of the wealthy. Wake UP People and do the Tax Reform thing!

They would rather point fingers than fix things

Fixing The Debt Part 2: Reforming the Tax Code

Members Fix the Members and panelists come together to discuss Tax Reform and health care reform in the context of how a plan may be put in place to solve our nation’s fiscal challenges.

Support Fix the Debt today and sign the Citizen’s Petition: http://www.fixthedebt.org/subcampaigns/citizens-petition

Duration : 1:42:29

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Is this a good tax reform plan?

I call it the 5 5’s Tax Reform Plan which would put a 5% tax on five type of taxes that are the following:
5% Income Tax
5% Property Tax
5% Corporate Tax
5% Dividends Tax
5% National Sales Tax
Is this a good Tax Reform plan or not? I am not an expert on economics but I is this a good plan or not? Pros and Cons? Could this hurt the people in the US as well as the economy or would it stimulate the economy? Could this replace the IRS?

No, because it won’t raise nearly enough revenue to support the current system.

If you tinker with the tax code, do you possibly believe it would benefit you?