Income Tax Reform

Article: “Income Tax Reform”

Authors: Joseph Henchman.

Date of the Article: November – December 2012.

Link: Reviewed article attached separately.

In the article, Henchman explains the numerous ways which have been tried by different states and employed in order to help reform the income tax. The two main areas being ‘tried’ by most states are the tax base and the tax rate, some states are reducing or increasing either of the two with hope that they can make the income tax fair and at the same time raise enough revenue for their states. Henchman starts by explaining how economically fit a state with a ‘broad base and low tax rate’ can be. Generally, he says income tax reform is all about broadening the tax base and lowering the tax rate. At the beginning of the article he gives an example of the state of California and explains how the tax exemptions have narrowed the tax base and tax rates have risen. This explains the high cost of living in the California state.

The second state example given by the author is the State of Utah. In 2006, the governor decided to introduce the five percent flat tax rate. The flat tax rate was introduced because the governor realized the revenue that was being generated was not enough to cater for the state expenditures. The low revenue realized by the state was due to a narrow tax base, but the governor felt otherwise. He felt it was the low tax rate causing the deficit in the government funds and revenue versus expenditure accounts of the State of Utah. The tax deductions that were allowed for tax purposes were stopped and the flat tax took effect with the sole aim of broadening the tax base.

The third state example given in the article is the Rhode Island. The author states how the state had a tax rate of 9.9 percent for so many years. Because tax reform is one area needed by many states, in 2006, the state introduced an optional flat tax in addition to the regular income tax rate. Rhode Island had been having one of...