Government Revenue: Taxation & Tax Efficiency - Essay Sample

Introduction

Government is able to fund various projects, developments and maintenance of structures vital to its citizens through taxes. Therefore, taxation refers to the system in which the government raises revenue (taxes) from its citizens and businesses through their income, assets, and transactions. The basic goal of taxation is to raise revenue (Joel, 1990). Tax efficiency is an ideal concept taken into account to address the code of compliance through minimizing the administrative red tape, and distractions caused in the economy. Minimal administrative burden promotes the economy and the tax payers since taxation is a requirement and not tax policy. Introduction of an electronic filing of tax returns is the most efficient and convenient way eliminating the need for help from lawyers and tax accountants.

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Taxation also serves the purpose of limiting or promoting certain activities. Tax loopholes are an intended or non-intended form of paying taxes that enables certain groups to exploit in paying less taxes. The intention of Congress was to give the preferential treatment to a given group of people or businesses. Taxation equity is a fundamental principle that asserts that taxes must be fair. However, to be fair taxes must be based on the benefits that an individual receives from the government.

Therefore, to collect the taxes the government thus puts in place the sources for this revenue which is equitably diversified to prevent being a burden to its people. This source falls into the following categories taxes on income, taxes on property, and taxes on goods and services. The major taxes that will be discussed briefly are income, sales, and property taxes (O'sullivan A, 1995).

Income tax. This type of taxes offered in the United States is levied on personal, businesses and interest income. This type of tax is progressive such that the higher the income, the higher the taxes levied while the businesses submit their taxes on net income. The government also permits employers to deduct taxes from their employee's payroll for sum submission. This type of taxes has a number of advantages: income tax is an equitable tax. It based on the taxable capacity of the people. The idea of being progressive tax makes the income equitable (O'sullivan A, 1995). Also, it is economical the cost of collecting the income is relatively low in the sense that employers deduct from their worker's paycheck and submit to the authority. Income tax is elastic such that it can be adjusted to fit the needs of the government and the income of an individual. When the income amount of the citizens goes up, the rate also goes up, and vice versa is true. In addition, income tax increases civic sense. When the tax is deducted from the workers, they become aware of their rights. This consciousness makes people want to know how the government spent their money to benefit them.

However, the income tax poses some demerits to the people, economy and the government in general. The tax is an inconveniencing tax. The taxpayers are required to keep an elaborate account of all their taxes to the satisfaction of the tax official, and sometimes they are called to submit their taxes in full which is both inconveniencing and bothering. Income tax is also evadable since the tax requires that people submit on the grounds of honesty as an individual can submit false tax returns. Lastly, income tax is demoralizing as people's desire to work and save is not the case but must pay the taxes regardless.

Sales tax. Taxes levied on goods and services another fundamental source of raising revenue in the US. Total purchases recorded in a retail store are added a percentage of the sales price of the item. The rates vary according to the particular item such as food, clothes, vehicles or electronics. Under this type of tax, there are other taxes including exercise tax based on the quantity of an item; user fees levied of a wider variety of services such as airline tickets, rented cars, road tolls, hotel rooms etc.

Sales taxes have advantages over that are associated with. It is a convenient method such that it is levied on commodities and are deducted after the purchase of the item. The cost of the item is included in the commodity and services; therefore the buyer does not feel the burden of the tax. It is also an equitable tax in the sense that it is paid by all people when buying that commodity. Sales tax covers many people (wide coverage) since the tax is imposed on a wide variety of goods and services that at the end of the day people must have interacted with (B, 2018). This thus enables everyone to contribute to the revenue. In addition, it is a transparent tax since the commodities can be valued and tax is determined beforehand. The revenue can then be quantified with accuracy. Sales are socially desirable as it is levied on intoxicants like opium, wine, alcohol e.t.c., and therefore limit the consumption of such harmful products whose majority of the public are intolerant.

However, the sales tax carry along some of the disadvantages which must be looked upon. It is a regressive tax in the sense that the poor are affected more than the affluent members of the society. It also causes market turbulence as the product's prices rise such that its demand declines (B, 2018). There uncertainty of quantifying the extent of decline when the tax is added. The tax also does not promote civic consciousness. The citizens do not participate much on these taxes as they buy the product with the price tag indicated. Inflation is also caused by the taxes as the prices rise so does the cost of living.

Property taxes also referred to as the ad valorem tax is levied on the value or real estate, and personal property. This taxes is recurrent and imposed by the local government. Taxes include real estate taxes. Taxes are on the basis of the assessed property worth on condition of the location, and market value.

Advantages of this tax are as follows; difficult to evade since an assessor is sent the value of the proper cannot be falsified. Low administrative cost, in relation to other taxes such as sales, property tax is way lower. It is also transparent since the rates are controlled locally and thus information about them is available for decision making (Hogan, 2017). Nonetheless, the disadvantage of this tax is that it is volatile since when the value of the property falls, so does the taxes and revenue collected suffers too.

References

B, S. (2018). Micro Economics Nites. Retrieved from Tax Types: Types of Taxes (With Advantages and Limitations): http://www.microeconomicsnotes.com/taxation-2/tax-types-types-of-taxes-with-advantages-and-limitations/15092

Hogan, M. (2017, 07 27). PocketSense. Retrieved from The Benefits of Property Taxes: https://pocketsense.com/benefits-property-taxes-6385432.html

Joel, S. (1990). Optimal taxation and optimal tax systems. Journal of Economic Perspectives.O'sullivan A, S. T. (1995). Property taxes and tax revolts. Cambridge University Press.