Question

Small businesses will be affected by a new tax hike. Should the government take into account small businesses when they raise taxes?

Should the government be entitled to 39 percent of a person's income? Is 39 percent a fair amount to be asking top income earners to pay in taxes? Is it too much or too little? What about 35 percent, is that too much or too little?

Can you find more positives or negatives from raising taxes as far as on the economy?

Answer 1

It is true that small businesses will be effected with the new tax hikes as it increases the burden on enterprise and when these small enterprise can't take the burden they quit the market which results in loss of production and employment. Therefore government must consider all the payers of taxes. It should also consider small businesses and people with small income. If government is planning to increase the tax rates, its policy should be different for small and micro businesses. These enterprise should either be given subsidy or rebate in taxes in order to promote them.

Government's decision for 39 percent tax rates or 35 percent tax rates will depend upon the income of the population. If people in the economy are earning huge then higher tax should be charged and percentage of the tax will depend on above circumstances and if people in the economy belong to mixed category i.e. some are poor and some are rich then it should use progressive taxation where lower income groups pay less and higher income groups pay higher. If 39 percent of 35 percent is imposed without measuring the lower income group, they will suffer drastically. Because they will be paying larger portion of their income in tax. Hence there is no exact number for taxation it varies from economy to economy depending upon their income levels. In the above case 39 percent would be too high so 35 or 37 percent would be appropriate for top earners under progressive taxation policy. Currently in USA the rate is around 35 percent for top earners.

- positive and negative impacts of raising taxes in economy.

There are hardly any positive impacts of high tax rates but high tax rates helps the government to earn high revenue which leads to overall development of the economy in terms of infrastructure etc.

However there are so many negative impacts of high tax rates which are discussed below:-

Low wage rates- Due to increase in the taxes businesse have to pay more and therefore they do not have margin for other expenses, that is why they give low wages to their workers .

No improvement in product quality- As huge part of their profit goes in taxation, they are not encouraged for improving quality because of extra expenses.

High price of products- when tax rates increase, businesses pass the burden to the consumers and hence it leads to increase in the price of products in the economy .

Unemployment- various small businesses can not afford high tax rates due to their low incomes and hence they either move to other countries to escape from taxes or shutdown the businesses which results in lost of jobs.

High poverty- high tax rates reduces the purchasing power of the people and they spend less, moreover high tax rates increase the price of products that is why people and economy suffer from poverty.