Reducing Sales Tax

REDUCING SALES TAX 5

ReducingSales Tax

Salestax can be defined as a form of tax which is paid to a particular.authority within a specific location for the sale of particulargoods and services. There are laws which are set in order to allowthe seller to collect funds for the tax from the consumers or thebuyers at the point where the purchase occurs. There are laws whichallow the sellers to separately itemize the tax from the price of thecommodities or include it in the price altogether. It is calculatethrough application of a percentage rate to the taxable price(Hofmann, 2013).

Moststates in the US have ca sales tax charge on individual purchases.The sales tax rates include state country and local percentages.Different states charge flat tax rate percentages and permit thelocal and municipalities to add certain amount for the residentswithin their controls. Sales tax plays an important role in thegrowth and development of the local communities therefore a reductionin the sales tax would have a negative impact on the city allotmentand budgeting.

Players

Themain stakeholders in the sales tax reduction are the localauthorities, the government, the tax payers (sellers) and the localcitizens. These stakeholders will be adversely affected by areduction in the sales tax by 2 percent although to the tax payers itwill be a reprieve. By reducing the sales tax by 2 percent, the localauthorities will have to strain their budgets in order to continueproviding the social amenities to the people. This implies that thegovernment will also have to cough more from its allotment budgets tothe affected cities. The tax payers will enjoy a tax holiday whilethe local citizens will get lower quality or insufficient servicesfrom the local authorities due to the constrained funds.

SWOT

Thereduction of sales tax has multiple strengths, weaknesses,opportunities and threats. One of the strengths of this action isthat it is administered by the local authorities thus in theimplementation of the tax cut, they would be in a position to seekalternative sources of funding to supplement the budget for instancebonds and borrowings. The tax cut also reduces the tax burden on thetax payers meaning that it will increase the revenues for the sellersthus enable them to meet other tax obligations. The reduction in thetax rate will also facilitate the establishment of more capitalinvestments thus contribute to the growth opportunities of thedifferent cities.

Thegreatest weakness of the policy to reduce the tax rate is theeventual economic impact. Reducing the sales tax rates would implythat the allocation to the different sectors of the regional or cityeconomies will be reduced too such as health, education and publicsecurity apparatus. The implementation of the policy would result ina slow down of the resource generation. Thus a reticent reduction inthe tax would immediately affect the outcomes thus a two percentreduction in the tax would create nearly $2 billion reduction in thecurrent budget cycle thus would injure other sectors such aseducation and health (Location of Sale for Determining Local TaxRate,2013).

Theapplication of this tax policy can be temporary implying that itcould be undertaken as a pilot project and the outcomes would justifythe expected outcomes. If it is found not to be effective, the localauthorities in that particular city have the opportunity to changeand apply counter measures such as increasing the tax rates.

Thepolicy is also surrounded by multiple threats in that the federalgovernment may fail to extend or increase allotment to cities withreduced sales tax rates hence threaten the service delivery of thesocial amenities in those particular regions. The secondary sourcesof funding that these states opt to revert to could be expensive thusthreaten the economies of those particular regions (Ratigan, 2014).

Decision

Fromthe analysis, it is clear that the reduction of the sales tax wouldhave devastating effects on the economy of the states especiallypertaining to the allotment of funds and service delivery. Thus thestates should have multiple sources of funding so as not to rely onsales tax since it is apparently very sensitive to the running ofactivities and budgetary allocations in the city. Although thereduction would be an incentive to investors, it requires a lot ofconsiderations before affecting it. This implies that the citiesshould either sustain the current sales tax rate by using alternativefunding or strategies to attract investments or revert to increasingthe tax or provide better services to the local citizens (Afonso,2013).

References

Afonso,W. B. (2013). Diversification toward Stability? The Effect of LocalSales Taxes on Own Source Revenue. Journalof Public Budgeting, Accounting &amp Financial Management,25(4),649-674

Hofmann,M., McSwain, M. Y., &amp McSwain, D. N. (2013). An Update on theStreamlined Sales and Use Tax Project. CPAJournal,46-50

Locationof Sale for Determining Local Tax Rate. (2013). Journalof State Taxation,31(5),39-42

Ratigan,S. (2014). Beware the Slippery Slope of Sales Tax. StrategicFinance,96(5),41-45