Taxation is the main source of revenue for governments, enabling them to undertake various projects, offer security and health care, and pay wages. To ensure adequate revenue, various tax measures and amendments are periodically made.

Some countries often see the United States as the leader in tax reforms, and there has been long-time speculation that it may overhaul its tax system. As the year 2024 runs, is there a chance this could be the long-awaited time? The debate and its subsequent implementation are of great interest to citizens, businesses, and lawmakers.

In this article, we will review the existing US tax system, helping you understand complex tax rules and what is triggering the reform debate. We will also highlight the most likely implications of its overhaul in 2024.

US Tax System Today

The tax system is not an easy thing to understand one and you may need to take time and professional advice to fully understand. The system comprises a combination of federal, state, and local taxes. These apply to individuals, businesses, and various forms of income.

The federal tax is the major source of income tax for the government and consists of progressive tax brackets. The design of these taxes is to impose higher taxes on higher incomes and lower taxes on lower-income earners. Additionally, there are corporate taxes, estate taxes, and payroll taxes.

Local taxes are imposed by individual states and charged to provide services at the county levels. Hence, they differ from one state to another, but the laws ensure that they do not result in double taxation compared to the federal government tax.

Reasons for Calls to Review Taxes

Over the years, there have been a number of reasons from various interest groups to do rax reforms, especially at the federal level. One major reason is to address the state of inequality and fairness in taxation. There are those who feel that the tax system currently oppresses those less wealthy while giving an advantage to the well-off. Hence, a review of the taxation system that aims at cushioning lower income earners by reducing the tax burden across different income levels.

Secondly, the world of business has become very competitive, with investors preferring to do business in countries where the taxation system allows business to thrive. In the recent past, there has been a shift of investment, especially in technology and production, to other countries like China due to tax incentives and the cost of labor. Hence, in order for the US government to protect local investors and attract international business, there is a need to review the taxation system to make the business competitive in the global landscape. In turn, there will be more growth in the economy, creating more employment and providing a new line of tax to compensate for what was given away after the review.

Furthermore, the recent global economic hardships brought about by climate change and the 2019 pandemic made nations realize the need for a resilient and adaptable tax system. The unexpected economic down trends brought about by the pandemic made lawmakers and other groups become more creative in tax systems that will support the recovery process. Hence, leading to faster regrowth and long term stability of the economy.

Foreseeable Impact of Tax Overhaul

If the US embarks on a comprehensive review of its tax system, it will obviously have a far-reaching impact on the various sectors of the economy. For instance, changes in individual tax rates, tax brackets, deductions, and even credits could change the amount of cash left in citizens’ pockets to spend and save.

Equally, where businesses are affected by shifts in corporate tax rates, incentives to start a business or international tax policies, they will also react to these changes depending on whether they will be seen as progressive or damaging. Hence, all of them will significantly influence strategic decision-making and business performance in terms of revenue growth.

Finally, from a larger economic perspective, a revamped tax system could alter the way consumers spend, consequently affecting investment patterns. In general, the market will have to realign and settle on a new position of balance. This might also change the United States’ position in the world economic map due to the effect it may have on trade relations and its foreign investment attractiveness.

Conclusion

The next months will surely be filled with intense debate, negotiation, and decision-making regarding the future of the US tax system. Factors such as economic shifts, social group concerns, and the need for economic resilience and stability in the face of unexpected global impacts suggest the potential for reform. A riding benefit of the tax system reforms is the opportunity to streamline tax administrative processes and enhance tax compliance.