How Will the Tax Reform Affect My Taxes?

The question of how tax reform will impact individual taxpayers is one of the most frequently discussed and debated topics. Will your taxes go up, stay the same, or go down? The answer largely depends on the specifics of the new tax laws, your compliance with the new regulations, and your individual financial situation. Let’s explore the factors that will influence this.

Economic Factors Affecting Tax Reform

The new tax reform, if passed, aims to fund a progressive agenda by raising taxes on most individuals. This means that your tax liability is likely to increase as a result of higher taxes, unless you are part of a segment of taxpayers who may benefit from reduced rates. However, with the current economic challenges such as inflation, supply shortages, and limited services, even a raise or a cost-of-living adjustment (COLA) may not be sufficient to keep up with these costs. As such, most individuals may find themselves paying more overall.

Business Tax Burden and Pricing

Part of the rationale behind the tax reform is to shift the burden back to businesses. If companies pay higher taxes, they can theoretically offset these costs by increasing prices, thereby transferring the burden to consumers. This creates a feedback loop where consumers face higher prices as a result of increased tax compliance costs from businesses.

Alternatives to Income Tax

A flat tax or a value-added tax (VAT) could provide more fairness in the tax system. While a VAT allows consumers to choose when to pay, an income tax remains a necessary component for funding government services. The challenge lies in designing brackets or tiers that reflect a fair distribution of tax burden.

Alternative Tax Systems: VAT vs. Flat Tax

A VAT, for example, allows citizens to make choices based on their spending. Essential goods are subject to a lower VAT rate, while luxury items have a higher rate. This system would allow citizens to save on essential items while contributing more on items they can afford. Unlike a flat tax, which places a heavier burden on lower-income earners, a VAT or a three-bracket system could be more equitable.

How a Three-Bracket Flat Tax System Would Work

Low-Income Folks Pay Nothing: These individuals would benefit from having every penny to survive. Neither of them could be forced to allocate funds towards taxes that would jeopardize their basic needs. Median-Income Folks Pay 25%: Those in this bracket would still have some disposable income while contributing a significant but fair amount to the tax burden. Above-Median Income Folks: Those with higher incomes would contribute a larger share, reflecting their larger share of the overall income. This system would ensure that the tax burden is proportional to one's financial means.

Such a system would be more equitable and would ensure that those who can afford to make larger contributions do so, thereby helping to fund essential government programs and maintaining a safety net for those who need it the most.

Conclusion

The specifics of any new tax reform will significantly impact individual taxpayers. Understanding the current economic climate and the potential changes in tax law is crucial for making informed decisions. By advocating for a tax system that reflects fair distribution and choice, citizens can strive towards a more equitable and sustainable economic future.

Vote for candidates who support tax reform that aligns with your values and financial needs. Let your voice be heard in the upcoming elections of 2022 and 2024.