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The 10 Tax Reform Benefits for Middle Class – 2019 Update.
Tax Reform Benefits for Middle Class… Tax is a charge against a citizen’s person or property for the support of government. In most countries all over the world, middle-income earners are seen to be the majority of the population.
Middle class people are the people between the lower and the upper classes. People in this class are neither rich nor poor. They are believed to afford their basic needs. They are not termed wealthy.
Tax Reform Benefits for Middle Class
Unlike the rich or wealthy, middle class earners are dependent on profits made from minor businesses or average salaries paid.
A middle class earner in the society has a lot of money-fulfilling responsibilities. This may be family or other money-demanding responsibilities.
However, these classes of people still need to surrender their taxes to the government as this is their obligations as a citizen.
But the Government can make effort in making this simple and easier for classes like this.
And this is done through tax reform to suit these classes of people.
Tax reform is the act of changing the system taxes are collected or managed by the Government. It is usually done to enhance tax administration or to bring to pass economic or social benefits.
In tax reform, the level of taxation could be reduced by the government therefore making system more effective, progressive, understandable and more accountable.
Tax reform is truly good news for low income and middle income earners in the country if implemented. And there is nobody who wouldn’t love a thing like this.
Now let’s look at the benefits tax reform can bring to middle class earners.
Benefits of Tax Reform
- Tax reform aims to fetch relief to 99% of the paying workers in the country by reducing their monthly income taxes (that is to say, lessening the overall tax burden of the poor and the middle class).
- It will reshape the tax system in the country, making it fairer, more efficient and easier.
- It will help the government raise revenues that it needs to invest wider in the country’s infrastructure and people.
- When this is implemented, more revenues will be raised to reduce budget deficits, helping to put the nation’s finances on a stable path.
- Tax reform can help middle class citizens save for their livelihood during their old age.
- Tax reform helps to bring about Economic and social stability
- Tax reform makes the system more progressive and accountable
- It secures compliance in the sense that it makes the middle class workers to see the need and the excitement in constantly paying their taxes.
- Tax reform is a way of empowering the middle class earners with the capability to save more; this also makes them to have enough for their daily expenses.
- In general, tax reform is simply utilitarian in nature. It makes a difference in the day-to-day finance of every middle class.
What’s the Need for Tax Reform?
Tax reform if done right could be a sure remedy for the troubles in the economic system. When there is a reform somewhere, there could be growth in the payment for long neglected debts in education, infrastructure and basic research.
More revenues raised from taxes would also help prevent budget deficits, therefore helping to bring the nation’s finances on a stable path.
The increase in tax payment can help reduce rising income inequality, and with it, inequality of opportunity that is both an economic and social scourge.
Growth From Tax Reform
How much growth will tax reform bring to the economy? The truth is that, it is hard to tell.
The uncertainty surrounding tax reform’s growth effects requires context. Substantial uncertainty already pervades traditional estimates typically accepted at face value.
The baseline revenue forecast starts with the Congressional Budget Office’s (CBO) economic forecast. No slight intended, but we know this forecast is wrong, we just don’t know whether it’s too weak or too strong in any given year or over the 10 years total.
Likewise, we know the traditional revenue estimates describing deviations from the revenue baseline are wrong, sometimes substantially so, but again we don’t know in which direction.
Nor do we know if the errors offset or accumulate. It is unreasonable to expect greater confidence in the economic growth estimates than we now have with the underlying traditional estimates.
Why would well-designed tax reform “grow the economy?” The simplest answer is because prices matter. Individuals and businesses decide how much to work, save, and invest based on the prices they perceive from wages to goods prices to profit margins.
Taxes distort such prices after tax and so distort these economic decisions, diminishing economic activity.
An economy grows because it has more resources, or because it uses them more efficiently. In this regard, the combustion engine provides a useful metaphor. Add more oxygen (labor) or more fuel (capital) and you get more horsepower (output).
In addition, technological advances improve efficiency in terms of horsepower or mileage, just as technological advances allow businesses to raise their economic efficiency, manifested in new products and higher labor productivity.
Three reforms are especially critical to a stronger economy: business tax rate reduction; expensing; and territoriality. A fourth, reducing tax rates on labor income to encourage work, is for political reasons not materially part of the current debate.
Of the three key reforms under discussion, economic models are fairly adept at incorporating the growth effects of rate reductions and expensing, but are less able to estimate the economic gains from territoriality.
These models start with the cost of capital or “hurdle rate,” representing what a business considers the minimum expected return on an investment in order to be willing to make an investment. Some investments have higher expected returns than others even after accounting for risk. Lower the cost of capital and more investments become profitable.
The cost of capital reflects the minimum, required after-tax return plus other factors such as risk, the time profile of the returns, and the taxes levied. Common cost of capital formulations readily reflects tax rates, depreciation systems, and financing considerations.
Included as part of a standard economic model, one can then relate changes in tax policy to changes in the cost of capital, which then indicates the expected change in the economy’s stock of productive capital, and thus the resulting ultimate increase in output.
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