Everything is in the file attached .

Everything is in the file attached .


UNIVERSITY OF BALTIMORE Robert G. Merrick School of Business Fundamentals of Income Taxation (ACCT 514) Tax Policy Paper Spring 2023 Prof. Phillip J. Korb TAX POLICY PAPER Due date: Monday, May 8, 2023. (A loss of 5 points will result for each day, including weekends that the project is late.) The purpose of this assignment is to provide an opportunity for each student to become familiar with tax policy and in the process, understand the importance of being a better-informed citizen. Requirements: A typed double-spaced paper on one of the following tax policy topics. There is a two-page minimum and a five-page maximum requirement for this paper. Where applicable, research sources should be properly cited. In the paper, you should discuss current policy and the reasons for the current policy. You should also state whether you agree or not with the current policy and why. If you disagree, how would you change the current policy? 1. A taxpayer whose taxable income comes mostly from qualified dividends and is generally less than the top of the second tax bracket, slightly over $44,725 for 2023 for single taxpayers, pays no income taxes. Using an average dividend rate for the S&P 500 for 2022 of 1.27%, this taxpayer would have a net worth in marketable equity securities of over $3.52 million, ($44,725/1.27%). Do you think this is fair, given a taxpayer with the same taxable income all from ordinary income sources would pay over $5,100 in income taxes? How would you suggest changing the law to make it more equitable? 2. Should net capital gains and qualified dividends be taxed at lower rates than so called ordinary income? What are some of the reasons for taxing capital gains at lower rates? Do these same reasons apply to qualified dividends? Since net capital gains and qualified dividends increase disposable income no differently than wages and other ordinary income sources, is it fair to apply more beneficial tax rates to them? 3. The Social Security (OASDI) wage base for 2023 is $160,200. Some actuaries claim that two-thirds of the projected shortfall in Social Security benefits would be funded, if there was no cap, i.e., the 6.2% OASDI rate would apply to all wages and self-employment income. Even reinstating the tax for incomes above $400,000 by allowing the cap to expire is estimated to make up 61% of the shortfall. What is the reason for the cap and how is it calculated? Although it only applies to wages and self-employment income, is it fair to allow this tax break to individuals with million-dollar salaries? What would you recommend? 4. The Affordable Care Act (ACA) subjected individuals to a penalty for failing to maintain minimum essential health care coverage. Large employers were also assessed a nondeductible penalty, known as a shared responsibility payment, for not offering minimum essential health care coverage to their employees. The purpose of the ACA was to promote universal health care coverage. Do you think this was a good policy? One of the criticisms of the ACA was that it penalized taxpayers for choosing not to have health care coverage, thereby infringing on their freedom of choice. Do you think the policy would have been better received by rewarding taxpayers and employers, e.g., doubling the deduction for premiums paid, providing a refundable credit, etc., rather than penalizing them? 5. Congress has tried to mitigate the so-called marriage penalty, i.e., where a married couple would pay more filing jointly than their combined tax liabilities if they had each filed as a single taxpayer. The 2017 Tax Cuts and Jobs Act (TCJA) limiting the deduction for taxes to $10,000 for both single and married joint taxpayers took the mitigation of the marriage penalty a step backwards. Where single taxpayers with over $10,000 in deductible taxes only need currently $3,850 more in itemized deductions to itemize in 2023, married joint taxpayers would need $17,700 more. It seems particularly unfair for married couples that both work and pay state and local income taxes. It also could affect a couple’s state income tax liability, because most states in order to itemize on the state return require itemizing on the federal return. Since most states have much smaller standard deductions than the federal amounts, this results in a couple paying more in state income taxes. Is this fair? How would you change the law to make it more equitable? 6. Treasury Secretary Janet Yellen has proposed replacing the annual dollar-for-dollar tax deductions for individual retirement accounts (IRA) and 401(k) plan contributions with a refundable flat tax credit for each dollar saved attempting to level retirement plan tax incentives. The proposed tax credit is 26% of individual retirement contributions. Under the plan, someone earning $500,000 would receive the same tax break as someone making $50,000. For taxpayers in tax brackets higher than 26% making contributions to these same plans would in effect pay more in taxes under the proposed plan while those in the 24% bracket and below would pay less in taxes. This leveling effect is not only fairer to lower earning taxpayers, it incentivizes lower earning taxpayers to contribute to retirement plans. Greater contributions to retirement plans by lower-earning taxpayers would also be a step in the right direction to correct the national problem where many individuals do not have enough in retirement savings. Do you feel this proposal is fair? Is this a good policy to solve the underfunding of retirement savings for most Americans?