Answer to keystone problemchapter 1 1101 there is no

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ANSWER TO KEYSTONE PROBLEM—CHAPTER 1 (¶1101.) There is no question that employing only one form of taxing mechanism would be more ef fi cient. However, would it be fairer? It is doubtful. Further, taxes are imposed for several reasons: one, to raise revenue to operate the federal government, and two, for social and economic reasons, such as in the case of the excise or customs taxes. It would be dif fi cult to think of one tax that could be imposed that would be fair to all citizens and yet raise the necessary revenue. If there was only the federal income tax, many individuals would completely avoid paying taxes. ANSWERS TO QUESTIONS—CHAPTER 1 Topical List of Questions Tax Collection (¶1101 and ¶1121) 1. Corporation Taxes (¶1101 and ¶1121) 2. Excise Taxes (¶1181) 3. Value-Added Tax: Disadvantages (¶1101) 4. Value-Added Tax: Advantages (¶1101) 5. Tax Avoidance v. Tax Evasion (¶1131) 6. Tax Avoidance: Investment Strategies (¶1131) 7. Tax Evasion Penalties (¶1131) 8. Fraudulent Acts (¶1131) 9. Tax Policy (¶1121) 10. Tax Planning (¶1131) 11. Tax History (¶1151) 12.
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4 CCH Federal Taxation—Comprehensive Topics Chapter 1 © 2009 CCH. All Rights Reserved. Taxing System and Social In fl uences (¶1165) 13. Tax Collection—Constitutional Authority (¶1151) 14. Income Tax Law—Date of Enactment (¶1151) 15. Revenue Legislation—Origination (¶1161) 16. Revenue Legislation—Congressional Committees (¶1161) 17. Joint Conference Committee Functions (¶1165) 18. Answers to Questions Tax Collection The government desires corporations to retain large sums of money for capital expansion. Whether or not 1. individuals and corporations should share the tax burden more equally is a political decision. Corporation Taxes This relates back to question 1. Some economists believe corporations should be encouraged to expand 2. their activities as much as possible. Only when an individual receives compensation or dividends from a corporation should there be a tax. Excise Taxes There are excise taxes on numerous items, such as alcohol, tobacco, gasoline, and luxury items such as 3. airplanes, yachts, and expensive automobiles. If the government decides it is in the best interest of the country to control any of these items, it can raise the excise taxes. As the tax rises, consumer consumption will decrease although, as is well known, not proportionately. Value-Added Tax: Disadvantages A value-added tax is like a sales tax. All individuals have certain needs—food, clothing, and shelter. If these 4. items are taxed, it affects the poor and rich alike. However, the poor spend their income almost totally on these items, while the rich spend only a small percentage of their salaries on food, shelter, and clothing. Value-Added Tax: Advantages The VAT has the ability to raise huge sums of money. Certainly, if Congress and the President desired to 5. lower the de fi cit, one way to do so would be to impose a VAT. For each 1 percent of VAT over $12 billion is collected.
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