Proposed Tax Chanegs: Equality or Inequality (Economics) - Essay Example

In such situations, the tax systems become increasingly important for the people and three primary systems i.e. the progressive tax system, the flat tax system and the sales tax system can be used for taxation. Of these, the one currently in place is the progressive tax system in which (as the name suggests) the tax rate is increased as the income of the household increases. This means that richer households have a greater share of their income taken away as taxes while the economically weaker households pay a lesser part of their income as taxes.

The advantage of this system is that the tax burden is distributed in equal proportion to the income of the individual therefore while the rich may be paying as much forty percent of their income as tax to the government, the less rich only have to give a fifth or even less based on how many dependants they have (Forbes, 2006). The primary disadvantage is the list of massive complications which come with having a progressive tax code which is often difficult to apply, understand or implement (Hall and Rabushka, 1996).

However, while the progressive tax system is important since it is the current system, an evaluation of the alternatives presents us with an interesting position on taxation. The first of the two is the sales tax option which can also be understood as taxation on consumption. Here, taxes are not placed on what the person earns but what s/he consumes within the economic system. In effect, if this system was enacted in the country then income tax would be eliminated but consumption of goods would be taxed by the government.

This would considerably expand the idea of sales tax under the curtain of using a flat tax system for the economy (Hall and Rabushka, 1996). The advantages of the system come from its simplicity and idea of fairness with regard to the investments a person can make