International Marketing Mix

PROBLEM 2

Americans dedicate billions of hours and billions of dollars each year complying with a very complex Tax Code. From a 2007 study, 78% of Americans think that there is an urgent need of a tax reform. Michael C. Burgess (2008) introduced a tax reform that can be helpful to simplify taxpayers’ life, the Freedom Flat Tax Act (HR 1040). The main idea is to apply a single flat tax on a specific taxable income, which is calculated after a deduction system that makes the entire tax payment procedure easier. Furthermore, it is considered a method that could enhance fairness and economic growth.

As far as the savings problem concerns, the Act can be helpful to increase the Americans’ accumulation value by avoiding the Federal income tax, which severely affects the interests on savings. The solution provided by a single tax could help consumers to increase their net worth and to stimulate good consumption in the long term. However, it is not certain that short-term demand will increase as well, due to the more advantageous choice of saving the current income. Furthermore, businesses income might not be positively influenced in the short term.

Considering businesses as the fuel of the country’s economic growth, it can still be useful to apply a reduction on corporate income tax, in order to stimulate companies to keep their headquarters and their earnings in the US. While this can be effective to promote inshore business expansion and jobs increasing, it should be as well considered that a too low tax can promote inequality among the different social classes, making the Government unable to provide the required services due to the less income gained. Thus, it is not simple to evaluate whether the internal economic expansion will cooperate with social fairness.

In summary, the Flat Tax presents itself as a regressive tax that can promote greater economic activity and increased prosperity. Burgess’ views are partially in accordance to the optimal tax theory, but it is difficult to evaluate whether fairness and the job market are going to be affected positively. One thing for sure is that the system is simpler and easier, and it will strengthen economic efficiency.