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Letice Morgan
ID: L30125696
Discussion Thread: Introduction to Taxation
August 21, 2023
Question 3: The tax code is extremely difficult for some to understand, thus the need for
accountants. In recent years the idea of a national sales tax has come to the forefront of tax
discussions. How would a national sales tax affect the accounting industry, and in particular
the tax industry?
Taxes are what help shape the financial economy of the country. Before we can go in
detail about a national sales tax, I think it would be beneficial to give a breakdown of taxes. So,
what qualifies as a tax? The text simply defines taxes as a payment required by a government
that is unrelated to any specific benefit or service received from the government. The general
purpose of a tax is to fund the operations of the government (to raise revenue). Taxes differ
from fines and penalties in that taxes are not intended to punish or prevent illegal behavior.
(Spilker, B. C., Ayers, B. C., Lewis, T. K. etc. all, 2024).
Now that we have a basic understanding of what taxes are, we will look into why we pay
taxes. So that we can better understand if and how a national tax would work and how it would
affect the accounting industry. Why do we pay taxes to the government? We pay taxes because
the federal, state, and local municipalities need revenue to provide the necessary infrastructure
to support their citizens. The taxes pay for a variety of government services like maintaining
roads, highways, and bridges to funding public libraries, parks, and education, among many
other things. The differences between state and federal taxes are federal income taxes are
collected by the federal government to pay their bills and state taxes are collected by individual
state governments to pay their specific state bills. Not every state has a state income tax; the
seven states without an income tax are Alaska, Florida, Nevada, South Dakota, Texas,
Washington, and Wyoming, while Tennessee and New Hampshire only tax unearned income.
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State income tax is levied by a state on a taxpayer’s income that was earned in or because they
live in the state. These taxes are used to pay the state's bills and provide certain state
programs. Taxpayers must file a state tax return for every tax-levying state where they earned
income, but only the state they live in can tax all of their income.
Taxes vary by each state and not all of them follow the same tax system. Nine states
have a flat-rate income tax system, which means that all income levels are taxed at the same
rate. The nine states are Colorado, Illinois, Indiana, Kentucky, Massachusetts, Michigan, North
Carolina, Pennsylvania, and Utah. The flat-state income tax rates vary and are not all the same
for each of those nine states. The other 35 states and the District of Columbia have a
progressive income tax system, which means that a taxpayer’s income is taxed in various
brackets at different rates that increase as the taxpayer’s annual income increases. Usually,
state income tax laws are more simplified compared to the federal tax code, with fewer tax
brackets and generally lower tax rates. Tax brackets vary by each state and certain states even
have tax laws that routinely adjust tax brackets and rates based on inflation.( Willetts, Jo. The
Difference Between Federal vs State Taxes, 2021).
There have been deliberations about the United States deciding to do a national sales
tax, it is called the Fair Tax Act, it would have different affect on each state because of how
each state is currently ran. Instead of paying federal taxes to the IRS, you pay them to your
grocery store every time you buy groceries, or to countless other businesses when you make
purchases. That’s a future proponents of the Fair Tax Act would like to see. The idea of
implementing a national sales tax in lieu of our current federal tax apparatus. If the Fair Tax Act
should pass, this bill will eliminate the need for the Internal Revenue Service( IRS) entirely by
simplifying the tax code with requirements that work for the American people. (Hardy, Adam.
Here's How the Proposed National Sales Tax Would Work, 2023).
Still, the proposal has many people wondering what a national sales tax or “fair tax”
would look like. The tax code is extremely difficult for some to understand, thus the need for
accountants. In recent years the idea of a national sales tax has come to the forefront of tax
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discussions. National sales tax affects the accounting industry in a way that the accounting
systems properly capture the tax for every sale transaction that transpires. Since the tax may
vary depending on the jurisdiction, there should be an assurance that the correct national sales
tax rate is being applied and accounted for when talking about the accounting industry. The tax
industry is also affected since tax authorities also have to ensure that the companies are
following and applying this national sales tax and would have a hand in analyzing and
administering the laws that would come from this national sales tax.
There would probably a change or addition to the Taxation classes and training to help
accountants reconfigure thinking when it comes to taxes on a national level. A pure retail sales
tax without exemptions or transition relief ought to have a positive impact on growth. First,
switching from an income tax to a consumption-based tax would lead to greater savings and
investment and I feel it would streamline the accounting concept. This may increase
productivity and growth, but we all know the economy is not that simple, which will always lead
to uncertainty and speculation. With that being said I always refer to Philippians 4:6-7 ESV , “do
not be anxious about anything, but in everything by prayer and supplication with thanksgiving
let your requests be made known to God. 7 And the peace of God, which surpasses all
understanding, will guard your hearts and your minds in Christ Jesus.” (Philippians 4:6-7.
(2023). https://www.biblegateway.com)
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References
Spilker, B. C., Ayers, B. C., Lewis, T. K., Weaver, C. D., Barrick, J. A., Robinson, J. R., & Worsham,
R. G. (2024). Taxation Of Individuals and Business Entities (15th ed.). McGraw Hill.
Willetts, Jo. The Difference Between Federal vs State Taxes(2021).
https://www.jacksonhewitt.com/
Hardy, Adam(2023). Here's How the Proposed National Sales Tax Would Work.
https://www.msn.com/
Philippians 4:6-7. (2023). https://www.biblegateway.com/
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