XV Международный конкурс научно-исследовательских и творческих работ учащихся
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Should rich people be required to pay more taxes?
Автор работы награжден дипломом победителя II степени
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The concept of taxation has always been essential to society because the government use the tax collected to fund projects related to health care system, education system, public transport and other social issues. As Oliver Wendell Holmes said: “Taxes are the price we pay for civilization”. However, the problem of taxation often produce deep divisions in society. Recently the question of introduction of income-progressive taxes has been widely discussed in Russia. We have chosen the topic “Should rich people be required to pay more taxes?” because, in our opinion, the matter is actual and no doubt controversial.
The objectof this study is income tax. The subjectof the research is progressive tax.
The aimof the work is to find out if the introduction of progressive taxes is an efficient measure to improve the economic and social situation of Russia.
In accordance with the goal, the following research tasks are defined:
1. to study the information about main tax structures;
2. to make a list of the countries where the flat tax rate is determined and a list of the countries with the progressive tax rate;
3. to compare the latest level of GDP (gross domestic product) of the countries in both groups;
4. to conduct a sociological poll on the attitude towards introducing of income progressive taxes in Russia and on the attitude to the Russian tax system in general;
5. to analyze the polling data.
The hypothesis of the study is to prove that rich people should be required to pay more taxes, that is, the introduction of the progressive rate tax would be beneficial for the Russian economy.
To solve the tasks posed in the study we used research methods: study, comprehension and generalization of theoretical material, questionnaire survey and comparative analysis.
The practical significance lies in the fact that its results can be used in order to improve financial literacy among students.
I. THE IMPORTANCE OF TAXES
Governments impose charges on their citizens and businesses as a means of raising revenue, which is then used to meet their budgetary demands. This includes financing government and public projects as well as making the business environment in the country conducive for economic growth. Without taxes, governments would be unable to meet the demands of their societies. Taxes are crucial because governments collect this money and use it to finance social projects.
Some of these projects include:
-Health
Without taxes, government contributions to the health sector would be impossible. Taxes go to funding health services such as social healthcare, medical research, social security, etc.
-Education
Education could be one of the most deserving recipients of tax money. Governments put a lot of importance in development of human capital and education is central in this development. Money from taxes is channeled to funding, furnishing, and maintaining the public education system.
- Governance
Governance is a crucial component in the smooth running of country affairs. Poor governance would have far reaching ramifications on the entire country with a heavy toll on its economic growth. Good governance ensures that the money collected is utilized in a manner that benefits citizens of the country. This money also goes to pay public servants, police officers, members of parliaments, the postal system, and others. Indeed, with a proper and functioning form of government, there will be no effective protection of public interest.
Other important sectors are infrastructure development, transport, housing, etc.
Apart from social projects, governments also use money collected from taxes to fund sectors that are crucial for the wellbeing of their citizens such as security, scientific research, environmental protection, etc.
Some of the money is also channeled to fund projects such as pensions, unemployment benefits, childcare, etc. Without taxes it would be impossible for governments to raise money to fund these types of projects.
Furthermore, taxes can affect the state of economic growth of a country. Taxes generally contribute to the gross domestic product (GDP) of a country. Because of this contribution, taxes help spur economic growth which in turn has a ripple effect on the country’s economy; raising the standard of living, increasing job creation, etc.
Governments also use taxes as a deterrent for undesirable activities such as the consumption of liquor, tobacco smoking, etc. To achieve this, governments impose high excise levies on these products and as a result, raise the cost of these products to discourage people from buying or selling them.
Importance of Tax to Businesses
For business to flourish in the country, there has to be good infrastructure such as roads, telephones, electricity, etc. This infrastructure is developed by governments or through close involvement of the government. When governments collect money from taxes, it ploughs this money into development of this infrastructure and in turn promotes economic activity throughout the country.
The concept of taxation is also important to businesses because governments can fund this money back into the economy in the form of loans or other funding forms.
Taxes help raise the standard of living in a country. The higher the standard of living, the stronger and higher the level of consumption most likely is. Businesses flourish when there is a market for their product and services. With a higher standard of living, businesses would be assured of a higher domestic consumption as well. Taxes are essential and every citizen is meant to reap benefits of these taxes. This is why it is important that citizens endeavor to pay taxes and understand that it is meant to be more than just a “money grab” from the government. [5]
II. THREE TAX STRUCTURES
Progressive, regressive, and flat taxes are all different tax systems governments can deploy.
A progressive tax is when the tax rate you pay increases as your income rises.
Progressive taxes are popular because they shift the burden of paying taxes to those who are likely most able to pay.
Like federal income tax, progressive tax systems typically allow several deductions and credits. These tax breaks provide additional relief for low-income taxpayers, but some tax breaks can also make it possible for high-income taxpayers to pay less tax than lower-income people. Inflation can also cause "bracket creep." This is when taxpayers are pushed into a higher tax bracket, even though their higher income does not give them more buying power.
A regressive tax is the opposite of a progressive tax because you pay a higher tax rate as your income decreases. This tax rate encourages people to earn more money. And certainly there is no need for everyone to flee from the obligation to pay taxes.
Flat taxes are when everyone pays the same amount, regardless of income. Flat taxes are appealing because they are simple: you pay a flat rate, and your tax calculations are done. The advantage of the rate is that it ensures equality of all citizens before the law. However, it is supposed to increase social inequalities and poverty. [ 7]
III. THE ADVANTAGES AND DISADVANTAGES
OF PROGRESSIVE TAX
Progressive tax as the name suggests is the tax on the progress the more an individual progress the more will be his or her income and more will be the tax liability of the individual. In order to understand more about progressive tax let’s look at some of the advantages and disadvantages of progressive tax .
Advantages of Progressive Tax:
The biggest advantage of progressive tax is that under this structure those people who earn more income will pay more tax and those people who fall under lower income category will pay less tax, hence in a way this system puts more pressure on more capable or rich person while puts less pressure on less capable or poor and middle-class person.
Another advantage of this system is that it gives sense of satisfaction to the people in the country because there is proper distribution of taxes as people earning more income are made to pay more taxes and people earning less income have to pay lesser taxes which in a way helps in reducing income inequality between the rich and poor.
Another benefit of progressive taxation is that government gets good amount of revenue because in normal taxation many middle class and lower class people do not pay taxes due to higher rates but due to lower income tax rate in progressive tax system majority of such people will pay taxes leading to increasing in taxable base of the country and higher the tax base higher will be the tax collection by the government.
Disadvantages of Progressive Tax:
The biggest disadvantage is that in a way this form of taxation punishes those people who work hard in order to earn money and hence in a way it discourages people to work hard because there is no incentive for people to work hard because the more the income the higher will be the tax rate and a person after earning enough money will stop working because marginal utility of money for an individual will decrease due to higher tax rates.
Another limitation is that there will be more cases of tax evasion as rich people will feel that they are being exploited and they will try to use all possible ways to make sure that they pay less tax and hence in a way under this system there is an increase in tax evasion by the high tax paying individuals.
Another disadvantage of a progressive tax is that it has the scope of manipulation by the tax authorities because there is no uniform rate and rate of taxation varies according to income which makes this system subjective and dependent on the personal opinion of the tax officials.
As one can see from the above that progressive tax has benefits as well as limitations and it is up to the government to decide whether it wants to implement progressive taxation system in the country or not. [4]
IV. COMPARISON OF THE LATEST GDP LEVELS OF THE COUNTRIES WITH FLAT TAX RATE AND PROGRESSIVE TAX RATE
While making our research, we found out that the flat tax rate and the progressive tax rate are the most common types in the majority of countries. Also, we discovered that the GDP (Gross Domestic Product) is a key indicator of the country’s welfare. Gross Domestic Product represents the economic production and growth of a nation and is one of the primary indicators used to determine the overall well-being of a country’s economy and standard of living. So we decided to analyze the relationship between the tax rate and the level of GDP in order to make a conclusion what tax rate is more beneficial for citizens. We have made the tables one of which shows the countries with the flat tax rate and the GDP level while the other shows the countries with the progressive tax rate and the GDP level (app.1). The data were taken from the Internet sources: visasam.ru/emigration/vybor/nalogi-v-mire.htm and ru.tradingeconomics.com/country-list/gdp.
Based on the statistics, we can say that countries where the progressive tax rate is imposed have significantly higher levels of GDP.
V.ANALYSIS OF THE SURVEY DATA
At the next stage of the survey we decided to conduct a sociological poll on the attitude towards introducing of income progressive taxes in Russia and on the attitude to the Russian tax system in general. The survey was made among residents of Borisoglebsk of 3 age groups (young adults, middle-aged and senior citizens). The respondents were asked to answer five questions:
1. Should rich people be required to pay more taxes?
2. Do you think that imposing of income-progressive taxes will improve your welfare?
3. Do you trust the government in the matter of distribution of tax revenue?
4. Do you think the media provide sufficient information about the distribution of tax revenue?
5. Do you think the tax system of Russia needs further transformation?
The survey was conducted using Russian language. We organized the findings of the poll in a bar graph (app.2).
After questioning it was found out that 70%-90% of respondents are convinced that rich people should be required to pay more taxes. Only 40% of senior citizens think that imposing of the progressive tax will improve their welfare with corresponding 60% of young people and middle-aged. As it was found out, the level of trust towards the government is low (only 10%-30%). The bar graph shows that the vast majority of the respondents think that the media do not provide sufficient information about the distribution of tax revenue. The statistics in the diagram reveal the fact that most respondents are convinced that Russian tax system needs further transformation.
CONCLUSION
Taxes are an important source of revenue for the government and progressive tax is one of the structures of the tax system, it refers to that system in which as the income of the individual increases his or her tax liability will increase and vice versa. In this research we decided to prove that rich people should be required to pay more taxes, that is, imposing of progressive tax rate is necessary for increasing citizens’ prosperity.
While working on the project, we have studied the information about main tax structures, found out the advantages and disadvantages of the progressive tax rate, have made the comparative analysis of the level of GDP in the countries with the flat tax rate and the progressive tax rate and have conducted the sociological poll on the attitude towards introducing of the progressive taxes in Russia.
Having studied the information about the tax system, we have discovered that the progress tax rate have some advantages:
-There is a proper distribution of the tax burden. Those with financial shoulders carry the heaviest burden.
- There is a reduction in tax amount for the less fortunate in society to ensure their tax burden is not crippling.
- The government collects more tax revenue, as compared to a proportional tax system. [2, p.168]
The biggest disadvantage is that in a way this form of taxation punishes those people who work hard in order to earn money and hence in a way it discourages people to work hard because there is no incentive for people to work hard because the more the income the higher will be the tax rate. Another drawback is that there may be more cases of tax evasion.
Having analyzed the statistics, we found out that the level of GDP is higher in the countries where the progressive tax rate is imposed.
Based on the polling data, we can say that most of the respondents are convinced that rich people should pay more taxes. However, they do not trust the government in the matter of distribution of tax revenue and think that Russian tax system needs further transformation.
In conclusion we can say that we consider the introduction of the progressive tax rate as an efficient measure to enhance the economic and social situation of Russia. At the same time, there should be no doubt in people’s minds that tax revenue is distributed in a proper way and maintain citizens’ well-being.
BIBLIOGRAPHY
1. Брызгалин А.В. О функциях налогообложения и о регулятивном значении налогов в экономике // Налоги. 2000. №1.
2. Динаев А. М. Обществознание. Полезная книга о том, как сдать ЕГЭ для школьников и поступающих в вузы.- М.: Хоббитека, 2019.-392 с.
3.https://corporatefinanceinstitute.com/resources/knowledge/accounting/progressive-tax-system/
4. https://www.letslearnfinance.com/advantages-and-disadvantages-of-progressive-tax.html
5. https://richardkleincpa.com/importance-of-taxes/
6. https://ru.tradingeconomics.com/country-list/gdp
7. https://turbotax.intuit.com/tax-tips/general/understanding-progressive-regressive-and-flat-taxes/L917X2gBs
8. https://visasam.ru/emigration/vybor/nalogi-v-mire.
APPENDICES
Appendix 1. COMPARISON OF THE LATEST GDP LEVELS OF THE COUNTRIES WITH FLAT TAX RATE AND PROGRESSIVE TAX RATE
Appendix 2. THE RESULTS OF THE SOCIAL STUDY