Tax Reform Options

Tax reform options play a major role in deciding what should be the most acceptable and suitable tax system. An ideal tax system should be able to collect the revenue necessary for funding government expenditures in a way that is uncomplicated, fair, steady and contributive to economic development.

The options for tax reform should be chosen keeping in mind that they should be able to make the tax system more practical. The tax system should be more simplified in its characteristics and every taxpayer should be able to understand the tax structure easily.

The factors that should be taken into consideration regarding tax reforms in the current structure are the following:

The degree to which tax reliefs should be allowed and in what manner they should be funded because huge tax reliefs result in revenue loss

Alternative Minimum Tax or AMT is a significant problem for the taxpayers. The taxpayers have to make Alternative Minimum Tax payments while their Alternative Minimum Tax obligation is more than the regular income tax obligation. The primary intention behind the implementation of Alternative Minimum Tax was to appropriate tax on inordinate sheltering functions. The Alternative Minimum Tax functions like a parallel tax. The tax has transformed and it has started taxing a wide range of items that the majority of individuals do not regard as shelters instead of taxing a large number of tax shelters. In addition, there is an anticipation that an exponential growth in the number of Alternative Minimum Taxpayers will take place in the near future.

There are two reasons behind it and they are the following:
- The regular taxes are scheduled to go down
- Indexing is not done to the AMT with respect to inflation
This increase in number will add complications and unfairness to the tax structure.
The anticipated growth in government expenditures in the years to come

The three principal aims for tax reform are the following:

Effectiveness
Simplification
Limited government

The tax reform options that are available include the following:

Fundamental tax reform: In this apporach, the whole tax system should be replaced by a new system
If fundamental tax reform is not feasible, a partial or piecemeal replacement of the tax structure can be performed
Integration of the corporate and individual income taxes
Consolidation of the individual income taxes and payroll taxes
Reconstitute deductions into credits
Abolition of the Alternative Minimum Tax
Enhancing national and private savings
Development of administration
Simplification of the tax system
Satisfying the requirements of the government expenditure
The introduction of flat tax, savings-exempt tax, retail sales tax and dual rate income tax