Tax is generally used by the government as a fiscal tool in order to attain one certain goal—“to increase economic growth by encouraging savings and investment” (Weidenbaum 2005). However, attaining this one certain goal through tax reforms has never been so simple evidenced by the existence of a wide array of approaches each with its own strengths and weaknesses.
In recognition to this, this case will evaluate four approaches to tax reform which is laid out in the article of Murray Weidenbaum namely flat, savings-exempt income, national sales, and value-added tax. The main advantage of flat tax is being less complicated than the currently utilized income tax as well as the elimination of double taxation. However, flat tax also has the tendency of reducing the value of municipal bond significantly.
The savings-tax exempt tax on the other hand, will be lead to the simplification of the taxation process and encourage investment. However, it will necessitate a major change from the current approach and an expected hard transition period. The national sales tax is seen as a device for the simplification of the tax collection process yet has very adverse consequences for the poor. The value added tax is deemed to be the superior alternative because of its economic neutrality, elimination of double counting and being comprehensive.
Yet it is perceived as anti-poor because even basic commodities such as food are taxed. In response, government often classify some basic necessity as VAT exempt. It should be noted that amidst the various alternatives, governments are not able to come up with the consensus on which single tax reform is most efficient for the attainment of economic goal. This just shows that the question of the best approach to tax reform is subjective and varies according to the needs of a nation under consideration.