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The Challenges of Taxation

The Challenges of Taxation

Tax cuts for the rich? Do poor people pay too much in taxes? Do "the rich" pay too little in taxes? How much does the government need to raise in taxes? What is "fair"?

To create a fair and just system of taxation - one which will be honored by the taxpayers and one which will be supported by the largest majority of citizens as possible, is a big challenge. Once the matter has been decided, and implemented, remembering the struggles and the compromises which were made is yet another challenge, as are the almost inevitable revisions and corrections.

Most would agree that poor people should pay less in taxes than do rich people. Some would advocate that poor people should pay no taxes. Our present income tax system is progressive - rates go up as does income. Few would argue that a regressive system (rates go down as income goes up) would be "fair." Some would argue that the rate should be the same for all - a "flat tax."

What makes a person financially "rich"? Is it a big gross income? Is it ownership of property with a big gross value? Or should either of these measures be "netted" with expenses or debts, and which expenses or debts "qualify" for this netting process? Is one type of income "better" than another type of income? Should the "better" income bear less tax burden? Is one type of property "better" than another?

When should the tax be due? If a rich man has difficulty paying tax because his assets are "illiquid" or his income "deferred," should he be required to pay tax immediately or should he be given a deferment?

What means of taxing is most efficient, creating the least burden upon the government and upon the taxpayer while raising the greatest revenue possible? Will the tax be collected from the persons who are supposed to pay, or may taxes be easily evaded? Will taxes overly burden the taxpayers, providing disincentives for innovation and production of capital?

How much does the government need to raise in taxes? What is the purpose of government? What programs are best undertaken by government, and which programs are better left to for-profit businesses, not-for-profit organizations, families, and individuals?

Are there certain activities that should be taxed differently than other activities? Is it the purpose of the tax system to discourage or encourage certain conduct? Or is this better left to other forms of legislation or social pressures?

Are we consistent in our approach to taxation? Do we give with one hand and take away with the other? Alternative minimum tax comes to mind. Are multiple layers of tax unfair, taxing some taxpayers more than they should be paying and others less?

Having struggled with these questions, and decisions having been made, how can the results of our decisions be monitored and reported accurately so revisions and corrections may be made in the future?