Should Taxes on People Making over 250,000 a Year Be Changed?
Remittance or paying of taxes is both a civil and social duty for all citizens who earn incomes. However, the rate at which tax is charged and the means of paying taxes varies depending on the source of the income, the amount of income and more importantly due to the relevant tax legislations. In America, the government has established rates of taxation for various income brackets considering factors such as marital status, physical impairment and economic factors such as the amount of disposable income (Reynolds & Steuerle, 2009). Usually, the government imposes taxation with various considerations in mind. In particular, the government considers the level of income. Paying taxes is something that everyone does although in different ways. Have you ever imagined that the price of commodities is same regardless of what someone earns? That means that for us to have equality in taxes payment we need to have a well laid down procedure by the authorities. There are a number of advantages of raising taxes for people earning more $250,000 per year. This paper will elaborate on some of these factors in details.
The government needs to address the issue of equality in payment of taxes especially in America. Many of the people earning more than $250,000 per year do not even realize in case there is a change in the tax that they remit. In a debate about the Obama taxing the wealthy in 2012, Obama noted that for 98 percent of families, and 97 percent of small businesses, did not see any effect to the tax increase. This is when he said he was ready to sign the bill since the majority was okay with it. It is important to note that these were not just mere debate but was something that would have a great impact on the gross domestic product of America.
Effects to Savings and Investment
When the taxes are increased, the amount of disposable money that these individuals have that they turn into investments and savings reduces. This may have a negative impact on the economy as it reduces private savings but if these resources are well utilized the public investments will increase. This means that more people will benefit from the amount that one person or a single company would have benefited.
Revenue collection authorities tend to charge people in higher brackets of incomes higher rates than those in the lower brackets. The above tendency is premised upon the fact that tax reduces a taxpayer’s income (Finkelman, 2014). Hence, the taxation system should target persons with more disposable income. If the government taxed persons in lower income brackets at a higher rate it would reduce their disposable income, which would gradually, make people in the lower groups poorer.
Redistribution of Income
The taxation system’s work is not only to gather tax, but also to address other social and economic issues such as income inequality by redistributing incomes to the marginalized or vulnerable groups. When people and companies earning over $250,000 are taxed higher it means that these resources will be used to provide services to the middle class people and give them a chance to develop economically since they are not highly taxed.
People earning over $250,000 are in the upper middle class, which means they have a considerable amount of disposable income. Increase in taxes would have minimal economic implications on people earning such amounts of money. By contrast, the disposable income of people earning below $ 250,000 reduce significantly once they tax rate in their bracket increases. Therefore, to address income inequality the government should increase taxes for people earning over 250,000 annually. This would ensure that middle and lower income earners have adequate disposable funds. From an economic perspective, people earning over 250,000 should pay more tax since they have the capacity to do so without reducing their disposable income significantly (Pollack, 2010). From a moral perspective, people with higher incomes have a duty to support the other economic groups so that the economic and social development is even. In addition, the extra tax charged on such a group would enable the government to support social programs that will address the plight of the economically and socially marginalized people.
Effect on Small Businesses
Although some people claim that raising the top marginal income tax rates greatly impacts on the small business owners, a recent Treasury analysis finds that only 2.5 percent of small business owners fall into the top two income tax brackets and that these owners receive less than one-third of small business income. Moreover, even those small business owners who would be affected by tax increases on high-income households are unlikely to respond by reducing hiring or new investment. This means that this increase will not influence the small businesses much in terms of business operations.
The small business premises are great contributors to job creation in America. This means that if taxes are increased these businesses will not be able to hire more people or will be forced to entrench some of its workers to curb increase in cost. This may negatively impact on the country’s economy.
Presently, the government provides significantly higher tax reliefs for the affluent, which means that they pay relatively lower amounts tax relative to their earnings. As such, they are able to contribute to their terminal benefits and health schemes easily without suffering any financial strains (Pollack, 2010). By contrast, people earning an amount lower than 250,000 dollars suffer financial strain, as a result, such people may not have adequate medical cover. Such problems may be addressed by tweaking the current taxation regime to ensure that lower income groups are taxed at lower rates. The tax regime affects various forms of savings such as retirement schemes and terminal benefits, which are vital for any population (Reynolds & Steuerle, 2009). The government can enhance retirement savings and uptake of medical cover via an appropriate and well thought- out tax regime. Most of the income in the lower income brackets goes towards consumption or meeting of basic needs, which contributes, directly to the economy. Reducing such incomes via taxation will take away disposable income, which would lead to a poorer low-income group.
It is important to note that the tax increment on the wealthy people will lead to more jobs being created because of increased public investment which leads to more demand of workers. In the second Obama-Romney debate of 2012, Obama noted that when Clinton was president and the system of taxation was in operation, there was an increase in the number of jobs whereby 23 million jobs were created. This means that the importance of this in the job creation cannot be over stressed. The result of this also is that there were more surplus and the country moved from deficit. To resolve the economic and social problems that have resulted from the present taxation regime, which favors the affluent, it is vital to consider the enactment of taxation regimes. The federal government alongside the state authority develop tax rates, which are later passed and implemented as law.
The federal and the state authority should consider the impacts of the current tax regime and review it appropriately. The respective authorities should not only consider the amount of tax, but also the indirect impacts of higher taxation on the low-income groups or individuals who earn below 250,000 dollars. The authorities should use the tax regime as a means of protecting the vulnerable such as families with one income earner while also reducing income disparity in the society. The authorities that develop the tax regime should therefore change their approach in the drafting of taxation regimes.
The tax rates in effect during the Clinton administration was characterized with strong economic growth. Although this cannot be interpreted to be just because of the higher tax rates that were in place, the interaction of a number of factors contributed to this tremendous growth. Growth in the GDP requires control of all the factors that affect the economic growth and taxation is one of the major factors in this. It has been observed that higher tax rates can indeed contribute to growth if policymakers use the resulting revenues in ways that support growth. For example the Clinton Administration tax rates and revenues gave room for budget deficits to be reduced, increasing public saving and reducing the long-term costs of borrowing; this is one of the factors that may have led to improvement in the growth of the economy.
In light of the existing taxation regime, it is morally and economically advisable to increase the taxation for individuals who earn over 250,000 dollars annually. This will in turn help in reducing the amount of public borrowing and increase the surplus of the economy. It is important to note that when the tax rates are extended by the authorities there would be a large deficit that would drag the national savings and the economic growth. This is something that is short term and would be countered by the existing public investments.
In conclusion it is important to understand that increasing of taxes on families and businesses earning more than $250,000 would have diverse effects on the economic growth of America. Although there are a few challenges that may be experienced with this tax increment, majority of these are short term. Tax being a major factors that influence growth of a country’s GDP should be highly utilized to ensure that all available resources are in their respective order and also that the lower class citizens and the upper class and middle upper class contribute to the best towards economic growth.