Taxes greatly influence U.S. economy. Because of this influence, it is good to k

Question

Taxes greatly influence U.S. economy. Because of this influence, it is good to know the effects they have in the economy and on a personal level. Complete the following to gain a better idea of the various types of taxes, their influences, and how they influence the economy.
Why is the federal income tax progressive, while sales and excise taxes are regressive?
Why do you think they were designed this way?
If you could, would you change anything with these taxes? Why or why not? Explain.
Can anything be improved one way or another?
Do you think the argument against redistributing income through income taxes based on reducing economic efficiency is a strong one? Explain.
Provide an example where a business did not expand because the possible taxes on the profits due to that expansion. Has this happened to your work? What are your thoughts on this?

Explanation / Answer

The federal income tax is progressive in order to generate the most revenue from the tax system. A progressive tax taxes low income individuals relatively less than high income individuals proportionate to income. Taxes are a function of disposable income. If a high tax was collected from low income individuals, they would not contribute to the rest of the economy. Sales taxes and excise taxes are regressive because purchase that are subject to sales and excise taxes are optional. Essential goods such as groceries are non-taxable items. These taxes are designed to promote responsible consumption practices. The government is able to capture revenue from purchases subject to sales and excise taxes by all income level individuals. The tax system is complicated, and any change would disrupt our social and political economy. Any time politicians talk about changing tax rates, the people have something to say. I would continue to impose higher taxes on inelastic goods and maintain taxes on elastic goods. This will allow the government to raise revenue on goods people will always buy and maintain an income without affecting how people spend their disposable income on elastic goods. I think the argument against income tax redistribution for economic efficiency is well founded. Redistribution of income does not provide the right incentives for the recipients of the redistributed income. Economists are fixated on incentives. Those who receive money through a distribution process do not have the right incentives to work or to spend responsibly. A redistribution system can be related to a tenant/lessee scenario. A tenant does not have all the right incentives to maintain a property to the best standard since they do not live there. A lessee does not have the right incentives to maintain the property either because they do not own it. Individuals on both sides of a redistribution system do not have the right incentives to maintain. My parents are both in the medical field, one is self-employed, the other works at a major hospital. Based on health insurance prices, and the part time status of one parent, it does not make sense to work any hours over 20 in a week. By the time taxes are removed from the check, it does not make economic sense to work extra hours. Though this is not an entire business, several people facing this same scenario may affect the overall stability and business of a company. I think this is an unfortunate system. Business should be promoted. It is the key to the economy; jobs, jobs, jobs. When people are employed, they are taxable, they have a disposable income, and they support the overall health of the economy.

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