The US tax system is complicated and thus, there is a need for tax reforms. First we can see that there is a dramatic decrease in individual income tax rates. Corporate income has also declined by half, and tax payers at all income levels have complained of its complexity. This paper focuses on the US tax system and the need for change.
Multi-millionaires such as Google have more cash in other countries and they make more profits, which are kept in foreign subsidiaries. The change in tax system should make sure that this income be brought back into the United States. They should also eliminate the tax holiday like the one that was passed in 2004. The tax will increase dollars for the government and as well bring more cash.
Need for US tax system change
Companies such as Google have many reasons as to why they stash cash overseas. First, their company has performed better in those countries than it has domestically. They are making much profit and stored the cash there so that they can invest in more foreign operations. Another reason is that taxes abroad have changed and thus, they see no need of bringing money back to the US. Many countries such as UK have lowered their tax rates and this is to the advantage of the foreign companies that invest in UK. The US has not changed its tax rate because it has remained at 35%, thus considered one of the highest in the globe. Companies have opted to pay their taxes in countries where they have gained their earnings because it is much less, while some have shifted their earnings to other countries where the tax rate is low (Zodrow & Mieszkowski 23).
The reason as to why the companies are not willing to bring the cash back home is that the extra cash that will be charged is high; hence, they prefer to invest in overseas countries and keep their profits there. Many companies in the US have shifting their headquarters in countries with low rates and hence, the US is loosing many jobs.
Therefore, the US should come up with a way to reform the tax rate by providing lower tax rates especially on foreign earnings. Failure to do this, jobs and companies will be shifted elsewhere and it will also affect the US’s fiscal position.
The alternative tax system
The best tax system that will be suitable for the US is the Revenue Positive Reform in corporate taxes. There is a need to come up with a corporate income tax system that is revenue positive. The Reform should seek to close all the tax loopholes since they are out of control. Reduction of tax rate from 35% to 30% or lower will be much helpful. Countries such as Canada, which is one of the best trading partners to the United States, cut its legislative corporate rate from 43 to 29 percent.
Salvato agrees that reducing the corporate tax rate by at least 10% will not cause much loss because this will encourage the US companies that are storing their cash and paying their tax rates elsewhere to bring it back home. Thus, the government will collect much revenue, encourage more investors, and create more jobs and higher economic growth as well. This implies that US’s tax rate should be competitive to those of other countries.
In general, income-based tax should be stopped and be replaced with consumption-based taxes. This means that people will be taxed on what they consume: for example, having a way of taxing goods in places like supermarkets rather than contribution from working and investment. Therefore, Flat tax will be more uncomplicated than the current one because it will cover all domestic businesses such as imports and exports. Taxation of consumption avoids many complexities since inflation deforms the tax base by wearing out away the value of depreciation. This suggests that reforms in the tax system are vital to the US.
Salvato, Frank. “An Incredible Opportunity for Congress and America.” The New Media Journal. 2005. Web.
Zodrow, George and Peter Mieszkowski. United States Tax Reform in the 21st Century. Cambridge University Press. Cambridge, 2002. Print.