Mankiw's Principles of Microeconomics Chapter 12

1.       If you want to read more about government expenditures one source is the Economic Report of the President, available online here: http://www.gpo.gov/fdsys/pkg/ERP-2012/content-detail.html.  Now that you have had a chance to think about tax systems which type do you prefer - progressive, flat tax, income, consumption - there are quite a few possibilities.  How do you think the concept of equity or fairness fits into a tax system?

To think that back in 1902, total government revenue as a percent of GDP was at around 15% is absurd. With today’s rate hovering at a little over 25% it really puts into perspective the amount of money we Americans spend on our government. America’s balance sheet has never been as complex as it is today. Federal spending pays for programs that most of us would agree are necessary functions of government such as national defense. There has always been much debate about what programs should be a functions of government. Take social security for example; while some will argue that the government should play a role in making sure its citizens have a source of income once they reach retirement, others will argue they should have control of those funds and make investment choices that ultimately cover more than just the rate of inflation. 

Be that as it may, come April 15^th most of us will sit down at the computer and crank out deduction upon deduction watching that refund amount rise, or if you’re on the wrong side of the coin, the amount owed increase. I don’t know about you, but at the end of the day, once you’ve transmitted your tax return to the IRS, you ask yourself if there’s a better way of doing this. I’d like to believe there is. I would tend to lean towards the side of doing away with income tax and switching to a consumption tax. If my salary is $40,000 per year then I’d like to get every last penny of it. Consumption tax is an equitable and fair way to distribute taxes throughout our country. In my opinion, a consumption tax is more progressive in nature since the higher income people would most likely continue to spend their disposable income at the same rate. I realize the price of everything would go up, in some cases substantially, but in the end, it’s the consumer’s choice to make that purchase.