Taxation System Approach of Different Countries
The overall tax structure of the United States is a progressive structure. The effect of the taxation structure is the proportionate increase in the tax levied with the rise in income. In the United States, income forms the primary source of taxes for the country. Notably, a report on the tax returns of 2008 indicated that income taxes accounted for 30.4% of the federal taxes. The United States also charges social insurance taxes which rank seconds and acclaim 23.9% of the total taxes. The other taxes include corporate ones at 8.1%, excise and estates taxes at the federal level. The state level taxes comprise sales, property, income, corporate, exercise and other taxes.
The taxes level in the US escalates as individual earns more income. The levying of more taxes acts as a discouragement to earn more income. An increase in the income tax would result in a decline in productivity and eventually turn into the productivity of the economy (Gale and Andrew 7). In addition, the progressive tax approach of the United States does not translate to increase in government revenue (Huang and Nathaniel 8). Arguably, the progressive tax structure provides for a balance in wealth distribution rather than resulting in government revenue increment. The United States also charges taxes for social insurance program from salaries and wages of individuals. Considerably, a massive chunk of the income for individuals is levied as taxes.
Japan, one of the most advanced countries in the world, adopts a corporate based tax system where most of the tax revenue is levied from corporate profits. It applies a corporate tax of 48.9% which matches that of Germany and exceeds that of the United States which stands at 44.0%. Moreover, Japan also adopts other forms of taxes which include individual income and consumption taxes. The former presume a progressive tax structure while the latter apply a flat rate of 8% (6.3% state tax and 1.7% local tax). Japan also establishes a double taxation treaty to provide for appropriate and reasonable taxation of income earned in Japan. The country has a double taxation treaty with Spain.
In the United Kingdom, the largest source of taxes is the personal income tax while taxes on national insurance are the second. The two largest sources of taxes are reliant on the salaries and wages of individuals. The country also levies value-added taxes (Vat) on consumer goods and corporate taxes which occupy the third and fourth ranks respectively. The United Kingdom adopts a progressive tax structure for personal income tax while a flat rate of 12.0% applies to the national insurance contribution tax. The taxes rate on consumption (VAT) falls within three brackets which are 20% standard rate, 5% reduced rate and 0% zero rates whereas some goods are exempt of VAT deduction. A rate of 20.0% applies to the standard corporation tax.
Taxation Structures of Different Countries
The control on the tax system applies differently whereby the collection of taxes fall within specific jurisdiction and authority. In the United States, taxes are levied at two levels, that is, the local or state levels and the federal or national level. The nature of the taxes also differs whereby the national government is in control of income taxes, social insurance taxes, corporate taxes, excise and estate taxes. The states or local authorities are in charge of sales, property taxes, a portion of income and corporate taxes, exercise and other taxes. Comparatively, other countries including Japan and the UK have a central tax authority at the national level.
The distribution of the taxation scope also affects the appropriation mechanism of the national government and the local authorities. In the United States, the federal and the states governments assume different roles and appropriation whereby local states take responsibility for their respective expenditure (Gale and Andrew 16). State authority is directly in control of the business and trade activities within the boundaries of the state while the national government undertakes the welfare of the citizens. However, in other countries such as Japan and the United Kingdom, the federal government takes full control of appropriating government revenues to the local authorities depending on the administrative mandate.
Impacts of Taxes on Economic Growth
The different types of taxes have varying implication on the various indicators of economic growth. Personal income taxes affect the hugest population in any country. The burden of the individual income tax significantly affects the economic choices of individuals (Gale and Andrew 11). Tax cuts impact the level of disposable income that individuals have to spend. High-income taxes results to decline in productivity as it discourages individuals from earning high levels of income (Myles 32). Notably, in the United States and the UK, the personal income tax is quite high although the relative contribution in the economic growth remains stagnant. An increase in the levels of personal income taxes translates to heavy burden thus limiting economic activity to a minimum.
Corporation taxes also influence the level of economic growth. For example, Japan hugely relies on corporation tax as the primary source of government revenue. Notably, the government expenditure and not the amount of taxes influences the economic growth as evidence in the data from the organization of economic co-operation and development (OECD). A high corporate tax as that of the United States happens to be a burden for business hence turning investors way (Besley and Torsten 104). In comparison, Japan has a flexible corporate tax system which makes it convenient to attract business and yield substantial revenue for the government (Arnold et al. 64). Despite the United States pushes to lower the statutory corporate tax to 35%, the economic growth records a negative figure.
The other type of tax is consumption tax which concerns the consumption capacity of the households. It affects the prices of goods in a country hence impacting the level of spending on consumer goods. Japan charges the lowest consumption tax among the OECD countries while it records a high sales level on consumer goods (Myles 27). Comparatively, the United States employs a relatively higher consumption rate hence escalating the prices of the consumer goods. The trade activity on consumer goods in the United States is not as high while the collective influence of the taxes on personal income and business income is immense.
Tax changes affect the level of government spending which in turn influences the level of economic growth. The measures for economic growth include changes in GDP and economic activities. The implication of tax on economic growth takes the forms of individual and business income hence the emphasis is on personal income tax, corporate tax and also a consumption tax. Tax changes can be used as an effective fiscal policy to envision economic changes although the influence is an only short-term (Gale and Andrew 18). Taxes do not directly impact economic growth whereas public expenditure directly influences the economic activities of a country.
The organization of the country regarding the collection of different kinds of taxes also plays a role in influencing economic growth. In the United States, a two-level tax structure is adopted whereby the national government and the local/state authority undertake tax levying roles. As a result, the tax jurisdiction involves a huge tax burden on individuals and corporations in addition to the sophisticated mechanism applicable (Myles 21). Considerably, a single level of tax-levying jurisdiction such as that of the United Kingdom and Japan eradicates the barricade of too many kinds of taxes and process of tax remittance. Businesses and individuals favor a simple and straightforward approach where they would thrive and engage in more trading activities.
Corporate taxes and personal income taxes have been found to have the greatest influences whereby the increase results in a decline in economic growth. The level of corporate taxes dictates the business environment whereby high and static corporate tax structure proves to be a massive burden for investors to set up their business (Besley and Torsten 108). The United States corporate structure is quite high while also static making it unfavorable to set up new business. In addition, global business would favor other markets more than the United States. Japan adopts a dynamic corporate mechanism hence accommodating a conducive business environment (Markle 15). The levels of consumption tax also influence the sales statistics of the business and thus the vast discrepancy of business activities in the United States in the OECD.
Conclusion
Conclusively, the concerns about taxation and economic growth entail a long ongoing debate and empirical research. Taxation approaches do not apply uniformly in different countries. The case for OECD countries indicates huge discrepancies in various aspects of the tax system and tax structures resulting to different implications on the economy. Taxes changes only apply in the rectification of economic problems in the short run and cannot be directly connected to influencing economic growth of a country. Nonetheless, the taxation mechanism and approach influence various economic aspects such as consumption, business profits and also productivity. It is essential to concentrate on the government spending statistic while evaluating the economic growth metrics rather than relying on the taxation information which is unreliable and misleading.
Works Cited
Arnold, Jens Matthias, et al. "Tax Policy for Economic Recovery and Growth." The Economic Journal vol. 121, no.550, 2011.
Besley, Timothy, and Torsten Persson. "Why Do Developing Countries Tax so Little." The Journal of Economic Perspectives vol. 28, no.4, 2014, pp. 99-120.
Gale, William G., and Andrew A. Samwick. "Effects of Income Tax Changes on Economic Growth." 2014.
Huang, Chye-Ching, and Nathaniel Frentz. "What Really Is the Evidence on Taxes and Growth? A Reply to the Tax Foundation." 2014.
Markle, Kevin. "A Comparison of the Tax-Motivated Income Shifting of Multinationals in Territorial and Worldwide Countries." Contemporary Accounting Research vol. 33, no.1, 2016, pp. 7-43.
Myles, Gareth D. "Economic Growth and the Role of Taxation-Disaggregate Data." OECD Economic Department Working Papers vol.. 715, 2009, pp. 1.