2 Differentiate between the “benefits received”¯ and the “ability-to-pay”¯ principles of taxation. What are the pro’s and con’s of progressive, flat, and fair tax proposals?
The “benefits received”¯ and the “ability-to-pay”¯ principles of taxation are absolutely different and imply different approaches to taxation. In actuality, the US uses the progressive tax system which, means that the higher incomes get taxed at higher percentages than the lower ones. This tax system is the “benefits received”¯ one since this system gets taxes from the earnings of individuals. Individuals pay taxes depending on their income.
The flat tax system is the income tax system in which everyone pays the same tax rate regardless their income. Nevertheless, this system is also “benefit received”¯ tax system because it relies on earnings of individuals. The tax rate is equal for all taxpayers but the money they pay in terms of the flat tax system depends on their earnings since the higher is their earning the more money they will pay, even though the tax rate is the same. For instance, if an individual earns $1,000 he/she will pay $100 in taxes if the tax rate is 10%, while if the individual earns 10,000 he/she will pay $1,000 in taxes, if the tax rate is the same and comprises 10%.
The fair tax system is a sales tax system in which all taxes are eliminated but a single national consumption tax on retail sales is introduced. All family households will receive prebates of tax on purchases up to the poverty level to make them capable to buy necessities. This tax system is based on the “ability-to-pay”¯ principle since taxpayers will purchase only goods and services they can afford to buy and they pay taxes as they purchase those goods or services.
4 What has been the rationale made over years to justify government subsidies for agriculture? Present at least four criticisms. What is the role of “Food Stamps”¯ in this discussion?
The support of American farmers was the major concern of the government to provide subsidies for agriculture. In fact, the government subsidies are essential for American farmers to survive in the highly competitive environment. The costs of production are consistently higher in the US compared to other countries, such as Argentina or Brazil. As a result, American farmers may fail to afford the competition with foreign farmers because they will have to set the higher price compared to the price of foreign farmers because of the consistently higher costs of production. The government subsidies allow farmers to obtain additional financial resources and, thus, to save costs and to decrease the price of its products. As a result, products supplied by American farmers become affordable and relatively cheap.
The improvement of the competitive position of American farmers in international markets is another goal of the government subsidies. Agriculture is an important branch of the US economy. Therefore, the government attempts to support the US agriculture and to maintain its share in the global market because it helps the US to keep the national economy growing as American farmers can produce more products that are sold not only within the US but also in international markets.
Furthermore, the provision of Americans with cheap or affordable food is another goal of the government. The government is interested in cheap food for Americans because the US government has implemented the “Food Stamps”¯ program.Ā Hence, the government is not interested in expensive food because the food stamps program will need more financial resources. Instead, the government subsidies for the US farmers are more economically beneficial for the US compared to mere rising funding of the “Food Stamps”¯ program. The government subsidies to the US farmers stimulate their business development, the economic growth of the US, and provide Americans relying on the “Food Stamps”¯ program with cheap food.
Finally, the support of the US food industry is another objective of the government subsidies for agriculture. The food industry relies heavily on the supply of food products. If products are expensive, the food industry increases costs of production and prices. As a result, the US economy will suffer from the inability of customers to afford high prices of food products and slowdown of the development of the food industry because the low buying power prevents the business development.