The Affordable Care Act (ACA) and the Consumption Tax Paper Example

Introduction

The Affordable Care Act (ACA) will be retained in this proposed legislation as evidence suggests that the policy is on course to the achievement of some of its core objectives

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The Bill seeks to raise funding for the continued implementation of the ACA in the backdrop of the 1trillion dollar deficit

The Bill proposes introduction of a universal tax ; a tax that is levied on all Americans regardless of their economic statuses

The Bill further proposes measures to cushion economically vulnerable citizens from the adverse effects of the new taxes without exempting them from their tax obligations

Provisions on how the new taxes will implemented will be provided.

The role technology in achieving success in introducing the new tax regime

Key Terms

The major provision of the Bill is the introduction of the consumption tax. It is a tax levy which cuts across all types groups of citizens in the context of their spending habits. Consumption tax is levied on the goods and services that are produced and offered for sale within a given fiscal year. Fundamentally, citizens pay taxes when they spend money on products at a store or pay for services such as consultancy or medical care. Under the consumption tax, citizens also pay tax on the money borrowed. As such, the revenue authorities do not impose the tax on interest, dividends or capital gains on business organizations. However, interest expense as a not treated as a deductible for companies as the case with the current regime (Burman & Gale, 2005). That is, firms would no longer deduct interest on the borrowed money before computing net profits. It is a form of taxation practiced in many parts of the world with its success in Europe and Japan offering substantial evidence that it can succeed in the United States as well.

The consumption tax being considered under this Bill is the Value Added Tax (VAT). This tax is premised on the economic concept of value addition. It is levied on the amount by which the value of a good or service increases at every stage of production or distribution before reaching the final consumer (Burman, 2012). The VAT proposal is anchored on technological growth. According to Worstall (2014), technological innovation would make capital more attractive than workers. Thus, machines would replace human labor in producing goods and services, making payroll tax less relevant.

Overview of Legislation

The Bill seeks to raise funds to cover currents deficits and future ACA expenses. A tax percentage on the revenue amount at every stage of production or distribution of goods and services will be imposed. The target of the amount to be raised from the proposed tax will be pegged to the gross domestic product (GDP) of the United States. In 2017, the GDP of the United States totaled around 19.39 trillion US dollars (Statistica, 2018). The Bill proposes a 5-10 percent VAT on all goods and services. It is expected that this tax rate will generate adequate revenue to cover the program and its current deficit for the next ten years. Like many other taxes, VAT will be collected by the handler of goods or services at every stage of distribution or production and remitted to the federal government.

One of the negative impacts of the VAT is that it hits lower-income people harder than high-income earners as low-income persons spend most of their income on consumption (Burman, 2012). For this reason, the Bill proposes to exempt VAT on food, clothing and medicine to cushion low-income families against adverse effects of increased cost of goods and services.

Conclusion

The proposal highlighted herein may not be complete if the issue of transition from payroll tax is not captured. In many jurisdictions levying VAT, income tax is collected alongside VAT. However, implementation of such tax structure could be detrimental to the incomes of many Americans. Given this, the transition from the current system of income tax needs to be addressed in the Bill.

The transition is necessary due to deal with the issue of confusion among businesses and employees. More research is needed to on how the retirees will be treated with the new tax as increase in the cost of goods and services means that old people would be forced to spend more of their disposable incomes than anticipated in the income tax regime. Further research would enhance the Bill by spelling out provisions on how to protect the incomes of old people. Additionally, businesses have heavily invested in various long-term schemes, including those of their employees based on old rules. This means that more information is required on how the proposed Bill would address the impact of the new tax regime on long-term investments of businesses.

Due to the need for further research on the transition, the instructor is requested to help with case studies materials about VAT implementation. Provision of guidance on how to access academic resources on the success and challenges related to the VAT tax system in Japan and Europe would also be of great help in doing the research.

References

Burman, L. (2012). A progressive consumption tax? Forbes.

Burman, L., & Gale, W. G. (2005, July 28). The pros and cons of a consumption tax. Retrieved from https://www.brookings.edu/on-the-record/the-pros-and-cons-of-a-consumption-tax/

Statistica. (2018). Gross domestic product (GDP) of the United States at current prices from 2012 to 2022 (in billion U.S. dollars). Retrieved from https://www.statista.com/statistics/263591/gross-domestic-product-gdp-of-the-united-states/

Worstall, T. (2014). Bill Gates points to the best tax system, the progressive consumption tax. Forbes.