Question

Current debates about ideas to revive the economy generally fall into alignment with either classical or Keynesian economic theory. Some suggest that growing U.S. debt is a strong incentive for tax reform.

(1) Should we have a flat tax? Why or why not?

(2) What are the merits and risks of other tax-based reforms? Please assess at least one additional reform. Examples include, but are not limited to: a national sales tax, value added taxes (VAT), eliminating a variety of deductions or credits.?

Answer 1

1) we should not have a flat tax as The financing and structure of a tax change are critical to achieving the growth of economic. Different Tax rate cuts encourage individuals to work, invest, and save, but if the tax cuts are not financed by spending cuts, they then results in an increased federal budget deficit, that is in the long-term will lower raise interest rates and national saving. The net impact on growth is uncertain, but several estimates give suggestion that it is either little or negative. Base-broadening measures could omit the effect of tax rate cuts on budget deficits, but they also lower the impact on labor supply, investment ,saving,and reduce the direct impact on growth.  

If there will be flat tax implemented then the voters will have to speak up and let the representatives know that the current loopholes should be closed and not allow any new ones to replace them.

2) The merit and risk of other tax-based reforms are political and economic. My focus on the VAT (Value Added Tax) for this question. The VAT is a consumption tax which taxes the value added by businesses at every point in the production chain. It can use to both manufactured services and goods. Many industrialized nations apply VAT except the United States. Like tax-based reforms, the VAT is associated with demerits and merit. A major merit of the VAT is that it doesn't excludes investment and saving from the tax base. The VAT Is Wrong for the United States , asserts that investing and saving are vital for economic growth as businesses use capital to enhance their operations. Entrepreneurs use to begin businesses