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Unformatted text preview: DRAFT TAX BASES AND TAX RATES F. BARRY GORMAN, PhD, CA, TEP INTRODUCTION PART I SEARCH FOR AN OPTIMAL TAX STRUCTURE 1. Overview 2. Optimal Tax Base 3. Optimal Tax Rate 4. Conclusion PART II ALTERNATIVE TAX BASES 1. Wealth as the Tax Base (a) Overview (b) Arguments in Support of a Wealth Tax (c) Arguments Against Wealth Taxes (d) A Canadian Wealth Tax? 2. Consumption as the Tax Base (a) Overview (b) Arguments in Support of Consumption as the Tax Base (i) Equity (ii) Economic Efficiency (iii) Inflation (iv) Simplification (v) Utility Satisfaction (vi) Greater Taxpayer Choice (vii) Taxpayer Resistance (viii) Necessity (ix) Revenue Potential (x) Potential for Evasion (c) Arguments Against Consumption as the Tax Base (d) Economic Effect of a Consumption Tax 3. Income as the Tax Base (a) Overview (b) Two Approaches to Defining Income (i) Comprehensive Tax Base (ii) Flow of Wealth Concept (c) Decisions Associated With the Flow of Wealth Concept (i) What to Include in the Tax Base? (ii) Fluctuating Incomes (iii) Deductibility of Associated Costs (iv) Appropriate Time Period (v) Appropriate Tax Unit (vi) Inflation (vii) Types of Employment 1 (viii) Receipt Versus Attribution of Income (ix) Different Forms of Business Organization (x) Ability-to-Pay 4. Choosing the Optimal Tax Base PART III ALTERNATIVE TAX RATE OPTIONS 1. Overview 2. Flat Tax Rates 3. Regressive Tax Rates 4. Progressive Tax Rates 5. Arguments for Progressive Rates (a) Consumption Theory (b) Humanitarian Theory (c) Benefit Theory (d) Sacrifice Theory (e) Egalitarian Theory (f) Economic Stability (g) Other 6. Arguments Against Progression 7. How Do Tax Rates Affect Decision-Making? INTRODUCTION Government has many policy levers at its disposal when implementing tax policy. These relate to the alternatives available with regard to the computation of taxes payable, that is, tax bases and tax rates. This note discusses alternative base and rate structures available to tax policy makers. Tax bases are discussed separately from tax rates because amendments to the tax system are more frequently made in a piecemeal, incremental manner than by all-encompassing reforms to the tax system, that is, with individual amendments to the specific rules related to either the base or the rate structure. Therefore those seeking to understand, analyse, exert influence on, or criticize the tax system must understand its components, and especially the fact that an amendment to one aspect of the law will have a corresponding impact on other elements of the system. Although this note is primarily concerned with the income tax system, the basic concepts discussed are also pertinent to expenditure taxes. This reflects the discernible increase in the importance of indirect taxes and the comprehensive tax base concept reflected in recent tax policy announcements....
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This note was uploaded on 01/07/2012 for the course ACCT 4453 taught by Professor Gorman during the Spring '11 term at Dalhousie.

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