An English Course in Practical Taxation. Учебно-практическое пособие

Block 3. Standards for Evaluating a Tax. Equality

Problem-solving 4. Assume that because of the size of his family, Tom (problem 3) pays $500 in taxes. Jerry still pays $1,500.

Discussion: In this situation, vertical equity is considered to be present. Because he presumably has a greater ability to pay tax, Jerry pays a larger amount of tax than Tom— Jerry's income, although equal to Tom's, supports fewer people.

Some taxpayers consider inequitable the tax law provisions that treat similar income and deductions differently. For example, a person investing in bonds issued by a city does not have to pay tax on the interest income. In contrast, interest income earned on an investment in corporate bonds is taxed. People who operate proprietorships may deduct the cost of providing their employees with group term life insurance but may not deduct the cost of their own group insurance premium. If the proprietor incorporates, the cost of the insurance for both the shareholder-employee (owner) and employees can be deducted. Thus, the perception of equality often depends on the taxpayer's personal viewpoint. Because the concepts of equity are highly subjective, a tax rule considered equitable by one taxpayer is often considered unfair by a taxpayer who derives no benefit. Often, when evaluating the equality of a tax provision, taxpayers do not consider—or are not aware of — the economic, social, and administrative reasons for what may seem to be an inequity in the tax law.

Problem-solving 5. Karen is a single mother who earns $10,000 a year. Jane and her husband, Ben, earn $75,000 a year. Karen and Jane each pay Neighborhood Day Care $2,000 per year for taking care of one child while they work. Because the payment is for qualified child care, Karen is entitled to a $600 reduction in her income tax because of her low income level. Because of their high income level, Jane and Ben receive only a $400 reduction in their income tax. Who is more likely to view this treatment as being inequitable?

Discussion: Jane and Ben may view the tax rule as unfair, because Karen receives a larger reduction in tax for the same amount of payment for day care. However, there is increasing emphasis on tax relief for families. Congress has decided that it is important that

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An English Course in Practical Taxation

children be adequately cared for while parents are at work. Thus, Karen's family is given a larger tax break to help provide child care. Without the larger tax reduction, Karen might not be able to afford to pay child-care costs. The difference in treatment could also be based on the ability to pay child-care costs. In addition, the difference in treatment depicts a situation of vertical equity. Because Jane and Ben have higher incomes, vertical equity requires that they pay a higher tax (through receiving a smaller tax credit).

Find the equivalents for the following words and expressions in the text.

Основные требования; рассчитать налоги; разные мнения; уровень доходов; способность заплатить налоги; люди с низ- кими доходами; доход в виде процента; осознавать; снижение подоходного налога.

Ex. 1. Complete the sentences using the appropriate words.

a— low-income

b— benefit

c— ability

d— vertical

e— requirements

f— taxed

g— equality

1.Taxpayers have different opinions as to whether the federal income tax strictly satisfies the four...

2.A tax should be based on the taxpayer's … to pay.

3.The concept of … requires consideration of both horizontal and vertical equity.

4.Certain … individuals pay no tax.

5.Interest income earned on an investment in corporate bonds is ….

6.A tax rule considered equitable by one taxpayer is often considered unfair by a taxpayer who derives no ….

7.The difference in treatment depicts a situation of … equity.

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Block 3. Standards for Evaluating a Tax. Equality

Ex 2. Are the statements true (+) or false (–)? Correct the false statements.

1.In The Wealth of Nations, Adam Smith identified five basic requirements for a good tax system.

2.A tax should be based on the taxpayer's ability to pay.

3.The concept of equality requires consideration of both horizontal and vertical equity.

4.Vertical equity exists when two similarly situated taxpayers are taxed the same.

5.Horizontal equity exists when taxpayers with different situations are taxed differently but fairly in relation to each taxpayer's ability to pay the tax.

6.Those taxpayers who have the lowest ability to pay the tax should pay the greatest proportion of the tax.

7.Certain low-income individuals pay no tax.

8.A person investing in bonds issued by a city has to pay tax on the interest income.

9.Interest income earned on an investment in corporate bonds is not taxed.

10.People who operate proprietorships may deduct the cost of providing their employees with group term life insurance.

Ex. 3. Answer the questions.

1.What basic requirements for a good tax system were identified by Adam Smith?

2.What is the difference between horizontal and vertical equity?

3.Why don’t some individuals pay taxes?

4.Why do some taxpayers consider inequitable the tax law provisions?

5.Why are the concepts of equity highly subjective?

Ex. 4. Translate the following sentences into English.

1.Адам Смит выделил четыре основных требования для соз- дания хорошей налоговой системы.

2.Требования являются общепринятыми и обеспечивают основание для обсуждения первичных проблем относи-

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An English Course in Practical Taxation

тельно налогов. Эти требования — равенство, уверенность, удобство и экономия.

3.Требование первое: оплата налога пропорциональна уровню дохода налогоплательщика.

4.Люди с низким доходом не платят никакого налога.

5.Налог должен основываться на возможности налогопла- тельщика его выплатить.

6.Часто, оценивая равенство налогового условия, налогопла- тельщики не рассматривают — или не знают — экономи- ческие, социальные, и административные условия.

Семьям дают большие налоговые льготы, чтобы помочь компенсировать затраты на содержание детей.

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An English Course in Practical Taxation

depreciation methods — методы начисления износа litigation (n.) — тяжба; судебный процесс

Read and translate the text

Certainty—A taxpayer should know when and how a tax is to be paid. In addition, the taxpayer should be able to determine the amount of tax to be paid. Certainty in the tax law is necessary for tax planning. An individual's federal income tax return is due on the fifteenth day of the fourth month (usually April 15) after the close of the tax year. A corporation's return is due on the fifteenth day of the third month after the close of its tax year. The balance of tax due with the return is usually paid by check to the IRS. However, determining the amount of tax due may not be so simple. When planning an investment that will extend over several tax years, the ability to predict with some degree of certainty how the results of the investment will be taxed is important to the investment decision. Frequent changes in the tax law create uncertainty for the tax planner. The Taxpayer Relief Act of 1997 amended approximately 800 code sections and added nearly 300 sections. In addition to these legislative amendments to the tax law, the IRS and the courts issue a constant stream of decisions and interpretations on tax issues, which results in a tax law that is in a continual state of refinement. However, for the average individual taxpayer, who has wages subject to withholding, receives some interest income, owns a home, pays state and local taxes, and perhaps donates to a church or other charities, there is little complexity and a great deal of certainty in the tax law despite the numerous changes to the tax system.

Convenience—A tax should be levied at the time it is most likely to be convenient for the taxpayer to make the payment. The most convenient time for taxpayers to make the payment is as they receive income and have the money available to pay the tax. Most taxpayers would argue that it is not convenient to keep records, determine the amount of tax due, and fill out complex forms. However, certain aspects of the income tax law make it more convenient than it might be otherwise. Based on the pay-as-you-go concept,

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Block 4. Standards for Evaluating a Tax. Convenience. Economy. Certainty

taxes are paid as close to the time the income is earned as is reasonable. The pay-as-you-go system results in the collection of the tax when the taxpayer has the money to pay the tax. This tax payment system applies to all taxpayers, including the self-employed and those who earn their income from investing activities.

The federal income tax is based on self-assessment and voluntary compliance with the tax law. Taxpayers determine in privacy the amount of their income, deductions, and tax due. The tax calculated by the taxpayer is considered correct unless the IRS detects an error and corrects it or selects the return for an audit. The federal income tax system relies on the honesty and integrity of taxpayers in determining their tax payments. This system of self-assessment and voluntary compliance promotes convenience for taxpayers.

Economy — A tax should have minimum compliance and administrative costs. The costs of compliance and administration should be kept at a minimum so that the amount that goes to the U.S. Treasury is as large as possible. The IRS operates on a budget of about one half of 1 percent of the total taxes collected. However, the IRS's budget does not reflect the full cost of administering the tax law. A taxpayer's personal cost of compliance can be substantial. Taxpayers often need to maintain accounting records for tax reporting in addition to those that are necessary for business decisions. A corporation, for example, might use different depreciation methods and asset lives for financial reporting and for income tax. The taxpayer's personal cost also includes fees paid to attorneys, accountants, and other tax advisers for tax-planning, compliance, and litigation services.

Ex. 1. Find the equivalents for the following words and expressions in the text.

Определить величину налога; обычно оплачивается чеком; инвестиционное решение; частые изменения в налоговом за- конодательстве; поправки к законодательству; иметь деньги в наличии; заполнять множество бланков; самостоятельный расчет суммы налогов; добровольное соблюдение налогового

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An English Course in Practical Taxation

законодательства; обнаружить ошибку; честность налогопла- тельщиков; вести бухгалтерский учет; гонорары, выплачивае- мые адвокатам.

Ex. 2. Complete the sentences using the appropriate words.

a— pay-as-you-go

b— check

c— convenience

d— substantial

e— complexity

f— predict

g— self-assessment

h— determine

1.The taxpayer should be able to … the amount of tax to be paid.

2.The balance of tax due with the return is usually paid by … to the IRS.

3.When planning an investment, the ability to …. how the results of the investment will be taxed is important to the investment decision.

4.For the average individual taxpayer there is little … and a great deal of certainty in the tax law.

5.Based on the … concept, taxes are paid as close to the time the income is earned as is reasonable.

6.The federal income tax is based on … and voluntary compliance with the tax law.

7.The system of self-assessment and voluntary compliance promotes … for taxpayers.

8.A taxpayer's personal cost of compliance can be ….

Ex. 3. Are the statements true (+) or false (–)? Correct the false statements.

1.The taxpayer shouldn’t be able to determine the amount of tax to be paid.

2.The tax law is necessary for tax planning.

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Block 4. Standards for Evaluating a Tax. Convenience. Economy. Certainty

3.A tax should be levied at the time it is most unlikely to be convenient for the taxpayer to make the payment.

4.The tax payment system does not apply to all taxpayers.

5.An individual’s federal income tax return is due on the fifteenth day of the sixth month after the close of the tax year.

6.The balance of tax due with the return is usually paid by check to the IRS.

7.Taxpayers determine in privacy the amount of their income, deductions, and tax due.

8.A tax should have maximum compliance and administrative costs.

9.The federal income tax system relies on the honesty and integrity of taxpayers in determining their tax payments.

10.The IRS’s budget does not reflect the full cost of administering the tax law.

Ex. 4. Answer the questions.

1.What does the certainty requirement mean?

2.Why is certainty necessary in the tax law?

3.When is a corporation's return due?

4.Why is the ability to predict how the results of the investment will be taxed important to the investment decision?

5.What can create uncertainty for the tax planner?

6.When should a tax be levied?

7.What is the pay-as-you-go system?

8.What is the federal income tax based on?

9.When is the tax calculated by the taxpayer considered correct?

10.What does the economy requirement mean?

Ex. 5. Translate the following sentences into English.

1.Налогоплательщик должен знать, когда и как налог нужно заплатить и должен быть в состоянии определить количе- ство налога, который будет заплачен.

2.Уверенность в налоговом законе необходима для налого- вого планирования.

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An English Course in Practical Taxation

3.Федеральное отчисление подоходного налога происходит на пятнадцатый день четвертого месяца (обычно 15 апре- ля) после завершения налогового года.

4.Налоговые отчисления корпорации должны осуществ- ляться на пятнадцатый день третьего месяца после завер- шения налогового года (15 марта).

5.Частые изменения в налоговом законе создают неуверен- ность для специалиста в сфере налогового планирования.

6.Налог должен взиматься в то время, когда это будет наи- более удобно для налогоплательщика. Самое удобное вре- мя для налогоплательщиков, чтобы заплатить налог, это то время, когда они имеют наличные деньги.

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