Presented to Prof XYZ
The issue of taxation has been controversial throughout the ages. Whereas, there are those who feel that the government robs them of their hard earned money and therefore taxes should be lowered or eliminated altogether, there are those who feel that taxes are essential in order for basic government services such as defense, education and healthcare to run smoothly. They hence prefer a higher taxation.
While those who advocate for the abolition of taxes may be on the extreme, I agree that income taxes should indeed be lowered. In order to understand the question of taxation, an American must understand first the source of money that funds government operations and how it s spent. According to excerpts from a report to President Reagan on private sector survey on cost control on January 15, 1984, the report found out that any meaningful increases in taxes from personal income would have to come from lower and middle income families, as 90 of all taxable income is generated below the taxable income level of 35,000. (Kidd Devvy,2001).
Further, there isn t much more that can be extracted from high income brackets. If the government took 100 of all taxable income beyond the 75,000 tax bracket not already taxed, it would get only 17 billion, and this confiscation, which would destroy the productive enterprise, would only be sufficient to run the government for a few days. In order to understand taxation, you ll have to understand the terms national debt and deficit . These two terms are not the same. Few Americans actually know the difference. If for example, the government needs 1.8 trillion dollars to carry out its operations and its total revenues i.e. corporate taxes, social security taxes, excise taxes e.t.c total 900 billion dollars, the government has will have a shortfall of 900 billion dollars. This is the deficit and the accumulation of these deficits over the years creates the national debt which is piled onto our children and grandchildren.(Kidd Devvy,2001).
In a study conducted by the center on Wealth and philanthropy at Boston College, the report shows that wealthy New Jersey residents grew tired of the state treating their success as an ATM for politicians and hence they moved to Florida, Pennsylvania and even New York. These wealthy people brought an influx of 98 billion dollars to that state. This was due to the tax cuts that had been introduced by four successive Republican governors. The Democrats who followed raised the taxes substantially. Dennis Bone, chairman of the New Jersey chamber of Commerce at the time, told the Newark Star Ledger, This study makes it crystal clear that New Jersey s tax policies are resulting in a significant decline in the state s wealth. (allbusiness.com, 2009) This clearly illustrates that lower taxes bring greater prosperity and higher revenue to federal and state governments. Businesses are able to create more jobs and consumers get low priced goods and services. Quite literally, if you tax more, businesses won t hire and in an extreme case such as New Jersey, people will move to other states.Certainly, if the Federal government raised income taxes substantially, wealthy American investors will depart to other tax friendly nations and deny the American people the much needed jobs and prosperity.
On the other hand, supporters of the increase of income taxes argue that there is no way a country can go broke since it can simply tax its people more. They also point out that the government needs to raise taxes so that it can provide essential services such as healthcare, education, defense and welfare to its citizens.Additionally, they point out that the current tax system favors the rich and is partly to blame for the increasing inequality in incomes. Such people seem to rely too much on government and expect that the government will solve their problems. Increasing taxes on the rich is akin to punishing success and this will discourage enterprise and innovation that the country has been known for throughout the ages. Indeed, the people should be encouraged to wean away from the government. For instance, the welfare reform should serve as a valuable lesson. Pundits argued that people would starve in the streets if the welfare checks were stopped and recipients forced to get jobs. They indeed got jobs and not a single person starved. However, Supporters of increased taxation especially on the super wealthy have some fairly valid points.
First, they argue that the US economy is being damaged because the rich have a lower propensity to consume goods and services and a higher propensity to buy financial assets.(Corson Kimball,2010).Therefore, the aggregate demand and GDP is relatively depressed and financial asset prices are relatively inflated. This is very harmful to the national economy because GDP is lowered permanently relative to where it would have been with a more optimal distribution of income. After the Second World War, the US economy boomed. At the time the US had one of the fairest income distributions in the world. The economy did well at the time but not anymore. Today the gap between the rich and the poor is wider than at anytime in US history. For instance in 1970, the compensation ratio of the top 100 CEOs compared to the average worker was 45 to one. In 2008 it was 1,071 to one. They argue that the rich are taxed less and hence the wider income inequalities.
Indeed, revered investor Warren Buffet seems to concur and has said repeatedly that if the rich are taxed more, from all he has seen and knows, they will simply work harder. To reinforce this assertion, increased income taxation supporters argue that when taxes were cut on the super-rich under the Bush administration, the wealthy ran out of investments in factories, equipment and services. They flocked back to financial investments which were presumably safer and more profitable. The super-rich pumped their money into Wall Street casino like investments and helped create record profits for the financial sector. In 1960, the sector accounted for just 15 of all corporate profits. By 2008(before the economic meltdown),this figure rose to 40.The financial sector hence crashed as a direct result of tax cuts for the super-rich and wall street deregulation.
Indeed we should support lower income taxation oppose taxes because in America there is no royalty. No one is entitled to success. One does not need to descend from a special family to achieve success here. It is not whom you know but what you know that determines your success. If you are willing to work hard, make sacrifices and have a product or service to offer to fellow Americans, you can achieve success beyond your imagination. That s what makes America great. However, that greatness is being threatened. Elected officials who are sustained at taxpayers expense have forgotten that they answerable to the American people. They want to fill campaign coffers for their next election by coming up with all sorts of programs that eat up taxpayers money. People are getting rich not by offering a useful product or service but by crafting up a system funded by our taxes.Increasingly,financial success is based not on what one knows, but whom one knows. This demoralizes the hardworking, honest citizens who view the system as rewarding the unproductive while penalizing the productive.(allbusiness.com). Additionally, the government is too big already and we should be cutting the public sector, not raising taxes to expand it. The government should generate revenues to fund its various operations and not rely on increased income taxation and live within its means. Otherwise the national debt, which currently stands at12.6 trillion dollars (allbusiness.com,2009), will keep on soaring and the government will in return keep on raising taxes in order to try and reduce this debt.
The hardwork, cleverness, ingenuity and creativity which made our country the greatest in history, are being used to apply for useless government grants and programs. Today s high taxes make it impossible for most men to support an entire family. Even with the added income of a wife, the couple struggles to make ends meet. And as they go to work everyday, making do with less, trying to save for the future, they see neighbors who have learned to bilk the system and enjoy the unearned fruits of their cunning neighbor. As more couples succumb to getting something for nothing, the country s economy chokes and with it the slow death of this great country(Unitedright,2006). In conclusion therefore, income taxes should be lowered while finding effective ways to contain the gap between the rich and the poor such as encouraging philanthropy and the availability of the equality of opportunity. The system must be able to separate the mediocre from the excellent and higher taxation would amount to some form of income redistribution and punishing of success.