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Fair Tax
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What is fair tax? “There's only one kind of tax that would please everybody -- one that nobody but the other guy has to pay”. -- Earl Wilson Introduction A fair tax system might contain two basic ingredients: First, each person should pay his fair share of the costs of government; second, the government should only tax real value, not fiat money inflation. What constitutes fairness in taxation? In the first place, the proceeds should only be used to pay legitimate costs incurred by a government. In the second place, since every person receives theoretical benefits from the functions of the state so every person should contribute on a relatively similar scale as his neighbor. A cardinal rule in taxation should require those people who benefit from government activities to pay. This essay will explore the importance in a fair tax and the elements (criterions of a fair tax) that constitutes equitable taxation. The essay will then conclude after analyzing the distributional effects of implementing taxation and ways to reduce the undesirable effects, i.e. Tax capitalization. The importance of fair taxation A fair tax is considered where the redistribution of income via taxation and the transfer payment are proportional (Iyer, 1998). This view of redistribution of income is a widely held view that many consider equitable; representing one of the more basic and fundamental element in the importance of fair taxation. One of the most important requirement for an equitable tax is the preservation of horizontal equity (people with a similar ability to pay taxes should pay the same amount) and the preservation of discrimination of vertical equity (people with a greater ability to pay should hand over more tax to the government than those with a lesser ability to pay) when it comes to proportional distribution of taxation. And should the preservation of the strata be breached due to a perceived unfair tax, catastrophic events might suffice rendering potential economic and political problems.
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