Student Post Week 2

Please respond to the students’ post discussion in the attached work document. 

Student 1 Post

General sales taxes are spoken of as proportional AND as regressive. Explain how one or both can be accurate.

General sales taxes are both proportional and regressive.

It is proportional, in that, the percent amount of sales tax one pays is equivalent to the price value of items purchased regardless of income level. The amount of tax paid is solely dependent on consumption, therefore, the more you buy the more you pay.

It is regressive, in that, the equal amount of tax paid represents a higher percentage for a consumer with lower incomes while the same amount of tax paid represents a lower percentage for consumers with higher incomes.

Supposing Citizen A and Citizen B respectively earns $5,000 and $8,000 per month, and they both purchase articles worth $1,000 in week 1 and $500 in week 2 at a sales tax rate of 10%:

Both Citizen A and Citizen B will pay a tax amount of $100 each in week one and $50 each in week 2. This is proportional because both Citizen A and B paid the same amount of tax regardless of their income levels.

However, the total tax amount of $150 paid by each of the consumers represents 3% of Citizen A’s income, while it represents 1.875% of Citizens B’s income. This is regressive because Citizen A pays more tax as a portion of his income while Citizen B pays less tax as a portion of his total income though the nominal dollar amount spent in both cases is the same.

 

If corporations are legal persons for purposes of income tax, why are they taxed differently? Do they really pay income tax (even disregarding their ability to avoid taxes)?

The Business entity concept establish businesses including corporations as separate legal entities for insolvency, taxation, transaction, and other legal purposes. Businesses can be incorporated, acquired, amalgamated, or dissolved and do not incur medical expenses, enjoy holidays, and sick leaves which differentiate them from individuals and may contribute to reasons why they are taxed differently for income purposes. However, in my opinion, the fact that they are taxed differently are just arbitrary acts of legislature and the rates can be changed depending on the budgetary agenda of government policy just as Trump’s administration reduced the corporate tax rate to 21% from a high of 35%. Likewise, various Acts volatized income tax rate brackets of 14% to 70% in 1970 to the current bracket of 10% to 37%.

 

To say that corporations pay income tax is a misnomer, because income is the gross receipts, which individuals are taxed on. Corporations rather pay taxes on profits, that is, after deductible trading expenses has been taken out of the gross receipts or income. Consequently, individuals may deduct qualifying expenses including charitable contributions, educational expenses, and medical expenses, among others, which may turn their taxable income into something close to profits.

However, since majority of individual taxpayers do not deduct these expenses, it is safe to say that individuals correctly pay income tax, that is, tax on income, while corporations pay taxes on profits, not on income.

 

Corporations can receive income, yet may not pay taxes if they can declare net losses; however, an individual must pay income tax even if his/her income for the period did not even meet half of his/her living expenses.

 
 

 Sources:

https://www.dallasnews.com/business/commentary/2020/01/12/trump-slashed-corporate-tax-rates-to-21-but-many-companies-paid-far-less-than-that/

 

https://files.taxfoundation.org/legacy/docs/fed_individual_rate_history_nominal #:~:text=Tax%20Rate%20Over%20But%20Not%20Over%20Tax%20Rate,%247%2C300%20%2429%2C700%2015.0%25%20%247%2C300%20%2429%2C700%2015.0%25%20%2410%2C450%20%2439%2C800

Student 2 Post

Taxes are viewed as proportional or regressive depending on what is being taxed. You look at sales tax vs something like income tax and that’s most likely the easiest way to view the issue. Income tax is on a scale, depending on how much you make you might have to pay more or less, this is a regressive tax. This often is the negating factor in the argument that billionaires don’t pay their fair share of taxes because they do, and in fact minus good lawyers and tax exemptions they pay way more than most middle-class households combined. A proportional tax is similar to that of sales tax, its fixed and a given percentage regardless of all factors. 

The differences in personal vs corporation taxes is due to the nature of corporations to higher and supply incomes to employees, thus the government is incentivizing corporations to stimulate the economy by hiring more people and paying more people. In many models shown the more you give corporations tax cuts they often expand to hire more and employee more, this stimulating the economy further. Corporations do pay income tax but they do it in the form of income tax from employees. 

Prop 13, depending on who you ask it can go both ways, it was ahead of its time and a lifesaver and also had some bad ramifications. I believe one thing you cant argue with is the housing market in California is an absolute boom, that is even during the most recent recessions California was not hit as hard as many other states. The housing market in California has risen faster in the last 35 years, since prop 13, then the standard increase in salary. This would be extremely problematic for those that would like to live here but could not afford the property taxes if they were to rise faster than their income. This helped save people in the long term that either were on fixed incomes or did not see wage increases. This made it so people did not get priced out of their homes. 

Borrowing to cover debt can be only beneficial if your borrowing at a lower interest rate, its that simple. Similar to refinancing one’s home you simply borrow to lower payments, but in this case its different if you borrow and end up expanding the amount of interest you have to pay, thus just prolonging the pay off. 

Grants and own source funding all matter on the outcome. It is rare that there is a positive outcome and the community complains, its when there is mismanagement of funds or the outcome will only affect a very small group. Collecting 100% of everyone’s money to pay for 1% of someone’s issues depending on what the issue is can be considered by most mismanagement of funds.