Arguments against Tax Competition
February 12, 2025
In the business world, Cash is King. Companies that do not have adequate cash cannot survive for very long. This is because of the fact that employees, vendors, tax authorities, and other creditors expect to be paid in order for the business to remain in operation. When a company is not facing bankruptcy, it obtains […]
Commercial banks were first hesitant to adopt a subscription-based revenue model. This is because it was widely believed that such a revenue model would lead to a drop in revenue for the banks and hence would be unsustainable in the long run. However, over the years, several studies have been conducted. The results of the […]
Companies all across the world use financial modeling. As we have discussed in several articles in this module, financial modeling solves many business problems. However, just like every other science, financial modeling too has evolved! The art and science of financial modeling have been mostly developed on a tool called Microsoft Excel. However, over time, […]
Common size statements are not financial ratios. Rather they are a way of presenting financial statements that makes them more suitable for analysis. However, analysts always use them in conjunction with ratio analysis. In fact, financial analysts use common size statements as the starting point to help them dig deeper. Common size statements tell them […]
There are few issues which strike through the heart of communists in China and capitalists in America similarly. One such issue is the issue of taxes, particularly the taxes that are levied on people of the extremely high income category. The popular opinion is that the rich somehow collude with the politicians to create a […]
Governments all over the world generally levy graduated taxes on their population. This means that as the income being taxed increases, the tax rate also increases. Under a graduated tax structure, some amount of income is exempted from the tax. Then, there is a different tax slab, which becomes applicable as soon as the income increases. This progressive structure is supposed to help the government earn more money from corporations that earn more.
There are many governments that are now choosing to break away from this pattern. These governments do not levy taxes, where there are multiple tax rates for different incomes. Instead, these governments levy taxes based on a single rate. This is why the system is called a flat tax system. Flat tax systems have become very popular, particularly in countries that were earlier communist.
There are several benefits of having a flat corporate tax system. Some of these benefits have been listed below:
The bottom line is that flat-rate tax systems have empirically shown some advantage over graduated tax systems. However, these advantages are from an economic point of view. The political class stands to lose if flat-rate tax systems are implemented all over the world. This is the reason that they are not very eager to implement the same.
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