The Tax System is too complex - A glance at the tax guide for most countries will confirm that taxation is an incredibly complicated process, with ample room for error and manipulation.
- This may result in governments earning less revenue than expected as people find ways to avoid paying taxes.
Reasons for Proportional Taxes - It might be argued that high rates of taxes discourage people from working harder, moving into higher paid jobs and taking risks. WHY? They will be reluctant to loose their own gains to higher taxes.
- If taxes were to be constant, then this could be viewed as a supply-side policy to encourage greater incentives to work and therefore raise labour supply.
- Governments can use tax revenues to redistribute income and provide different types of assistance to groups in the economy to improve their standards of living.
- These are known as transfer payments.
- Transfer payments are not included as income in national income accounting. This is because they do not represent payment for the production of a good or service. They are payments made to increase the income of particular groups within the economy.
REDISTRIBUTION OF INCOME Transfer Payments Examples of Transfer Payments REDISTRIBUTION OF INCOME Other policies - A minimum wage policy is designed to ensure that workers are paid what is determined to be a “fair” wage.
- Governments may also legislate that firms pay social security benefits such as a designated minimum amount to cover medical insurance and or pensions for their workers.
- Both of these serve to redistribute income from firms to workers.
- It could be said that government sponsored training schemes are a way of helping workers find gainful employment and thus raise their living standards.
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