SCHOOL OF BUSINESS AND SOCIAL SCIENCE

CODE COURSE AND NAME :

BBC 1013 MICRO-ECONOMICS

TITLE OF ASSIGNMENT :
MICRO-ECONOMICS GROUP ASSIGNMENT ( REPORT WRITING )

TOPIC :
“If taxes are based on ability to pay, then richer taxpayers should pay more than poorer
taxpayers. But how much more should the rich pay?”

PREPARED BY :
MUHAMMAD RESHA DEVARA (AIU19092081)
PUTRI AYU JATI KUSUMA (AIU20092033)
AHMAD DAFFA HILMI (AIU19092052 )
ABDIRIZAK HASSAN AHMED (AIU19092039)
MUHAMMAD AKBAR (AIU20092030)
AHMAD MUSTAFFA RASHEED (AIU20092057)

PREPARED FOR :
OSAID N. A. ABDALJAWWAD

SUBMISSION DATE :
07 JUNE 2021

1
 1) INTRODUCTION

The most important source of government revenue is taxes. Taxes are mandatory
payments made by individuals and companies to the government based on certain established
rules or criteria such as income earned, property owned, capital gains made, or expenditure
incurred (money outlay) on domestic and imported goods. No tax is ideal, but taxes are
unavoidable if the government is to generate revenue to pay its expenses. Governments seek to
satisfy most taxpayers by ensuring that taxes are fair and reasonable. The main purpose of
taxation is to increase income. But other goals are also important in the design of the tax system.
The principle of taxation can only be chosen in terms of the objectives that are accepted as the
proper objectives of the economic system.

According to Adam Smith, there are 4 principles in the first taxation. Equity is, the
amount to be paid by taxpayers must be the same, which is proportional to income, secondly,
Certainly, tax collection must be regulated in clear laws and have binding power. The goal is to
keep tax collection in the right frame. Third Convenience of Payment is the tax collected from
the taxpayer must be in the right period of time. The goal is that taxpayers do not mind when
paying taxes so that the tax payment process can run smoothly. Fourth, the efficiency of the
funds collected must be greater than the funds spent when collecting taxes. (Asas Pemungutan
Pajak Direktorat Jenderal Pajak, 2021).

There are two types of equity in the economy which are defined as Horizontal equity and
Vertical equity. Horizontal Equity In this type of economic environment, everyone is treated
equally and there is no scope for special treatment or discrimination based on caste, belief,
gender, race and profession. An example to support this for example there are two people who
earn $ 10,000. Both persons must pay the same amount of tax and there should be no
discrimination between them. Thus, this type of economy demands a tax system that is non-
discriminatory and no special treatment is given to individuals or companies. And the second is
vertical equity, which is more concerned with the process of redistribution of income obtained by
ordinary people, among others in the community through taxation and taxation rules. This means

2
that someone who earns more will also have to pay more taxes or redistribute his income as tax.
This type of equity requires advanced or progressive tax laws. An example of supporting vertical
equity is like the tax law. involves progressive tax rates and proportionality. When compared to
horizontal equity taxes, vertical taxes are more achievable and result-oriented and there are many
loopholes associated with horizontal taxes. The opposite of equity in economics is referred to as
inequality in economics and equity plays an important role in eliminating inequality from the
economy.

2) REVIEW OF SOME LITERATURE

Many people believe that people who earn more earnings can afford to pay greater taxes.
They believe they do not need to be as concerned as individuals with low salaries who struggle
to meet basic needs such as food and shelter. This is one of the most basic justifications for
ability-to-pay taxation (ATP), in which governments impose higher tax rates on people as their
income rises.

Should we raise taxes on the wealthy? There is a continuous debate in the United States
and around the world about how much tax the wealthy should pay. People argue about whether
or not the richest 1% of the population should pay higher taxes. As the economy has deteriorated
in recent years, so has the discourse. People on the left of politics often support increased taxes
on the wealthy, claiming that the richest 1% of the population can easily afford to contribute
more. Those on the political right, on the other hand, contend that raising taxes on the wealthy is
counterproductive and may aggravate inequality rather than alleviate it.

Why should we tax the rich more? According to Economists, the rich spend a lesser
proportion of their total income than the poor. This is why the very wealthy control the great
bulk of investments (which need saving). In terms of spending, the poor and middle classes
spend more. As a result, rising income taxes on high earnings will not have the same impact on
total consumption as boosting taxes on low incomes. If we have to raise taxes on someone, this is
one reason why we should target the wealthy (Secularist 10, 2020). Regarding this issue, Warren
buffet also said “If anything, taxes for the lower and middle class and maybe even the upper

3
middle class should even probably be cut further. But I think the people at the high end - people
like myself - should be paying a lot more in taxes. We have it better than we have ever had it”
(Warren Buffett Quotes., 2021).

Furthermore, paying more taxes for the rich is not always bad for them. According to
Keith, he said “rich people in many European countries are glad to pay exorbitant taxes because
they know they will receive the best healthcare, schools, public safety, pensions, roads, airports,
clean food, and a variety of other services” (Secularist 10, 2020). According to Bill Gates, he
agrees that the rich should pay more tax than others. “I support a tax system in which those with
more money pay a higher percentage of their income in taxes. I believe the wealthy, including
Melinda and myself, should pay more than they presently do,” Gates wrote, referring to his wife
(Clifford, 2020).

3) CURRENT DEBATE ABOUT THE TOPIC.

The rich and the tax authorities are a triad of money. Therefore, it makes perfect sense for the
behavior of the rich who don't pay taxes to be shown in advertisements in the media as skewed
behavior. Disrespectful behavior. Then the visual form is complemented by the slogan "What
does the world say?" On the other hand, the tax authorities are also consistent in asking the
public to act more proactively. This is emphasized by the slogan "Pay off taxes, monitor their
use". This slogan wants to show that taxpayers do not need to feel castrated because the taxes
that have been deposited are then misused for interests that are not relevant to the development
of the welfare of the community-that is, they can participate in supervising the taxes they have
paid.

Current Debates:

There is a basic reason why the tax authorities need to hunt down the taxes of the rich
1. Their tax rates are greater than that of ordinary taxpayers.
It is possible that one rich person's taxes are equivalent to five ordinary taxpayers. This is
certainly a large accumulated value if calculated nationally.

4
 2. The tax compliance aspect of the rich seems to be very minimal.
In fact, many rich people should not only be ensnared by personal income tax but also
taxes through the business world they are involved in

3. The principle of justice in the life of the state.

In addition to the budget function or revenue function, taxes basically also carry out the
function of redistribution of income from people who have higher economic abilities to
people with lower abilities. Therefore, the level of compliance of taxpayers in carrying
out their tax obligations properly and correctly is an absolute requirement for the
achievement of the income redistribution function. That way, in the end, the economic
and social gaps that exist in society can be reduced to the maximum.

4. Taxes are still the main source of development funding.

As for the taxes from the rich, it becomes one of the bases to support their achievement.
Therefore, it is reasonable if the tax authorities build a special tax office for the rich. It is
hoped that the existence of the tax service for the rich will further improve the
compliance of taxpayers from the rich community. By itself, tax payments for the state
are also increasing. On the other hand, the tax service for the rich should not trigger a
gap between ordinary taxpayers and those of the rich because the essence of the tax itself
is for equity.

Tax payment is a form of state obligation. Taxpayers directly and jointly carry out tax
obligations for state financing and development. In accordance with the philosophy of the
Taxation Law, paying taxes is not only an obligation, but is the right of every citizen.

4) DETERMINE THE CAUSE AND EFFECTS.

A number of Democratic presidential candidates have stated their intentions to raise taxes
on the wealthiest Americans in order to help mitigate inequality, fund social programs that help
low-income people, and to curb the amounts of dynastic wealth in the United States, there are

5
others who disagree and believe these will result in the following: reduced investment, slower
economic growth, and increased tax avoidance (Wessel, 2019).

Apparently, the reason that could be found if rich people pay more than poor people
would be that the rich people would complain a lot to the authorities if they face any challenge
by any chance. In other words, claiming that rich people already pay a significant portion of their
income in federal taxes and that raising taxes will decrease investment and slow down economic
growth. Long-term economic impact of taxes is primarily, due to increased supply. A high
marginal tax rate discourages people from working, saving, investing, and taking risks, while
specific tax breaks may impact the distribution of resources. However, cuts in taxes can also
slow long-term economic growth by increasing the government's debt. Tax policies thus have
long-term effects, some of which are influenced by the incentives they provide and others by
their impact on the national debt (Urban Institute, Brookings Institution, and individual authors,
2021)

According to some, high tax levels in the Nordic countries are a deterrent to growth and
investment. On the other hand, it reduces the uncertainties that can arise from receiving welfare,
as well as getting access to health care and education. Long-term tax burden and long-term
economic growth are not connected (Pettinger, 2019). Moreover, Borrowing by the government
either reduces future productive capacity by crowding out private investment, reducing future
income, or diverts some of the income generated by that investment from American residents.
Deficits can reduce future well-being in either case.

5) RECOMMENDATION, SUGGESTION, AND SOLUTION.

It is already clear how the taxation law works, especially based on the examples that we
have discussed in the previous chapter. There are 3 points of solutions that we will discuss in this
chapter.
The first solution is to keep the tax rate based on the percentage of income and price by
referring to the national scale of public income and expenditure. By referring to the data taxation
could be initiated effectively and fairly for the citizen.

6
 The next is to keep the management of the taxation system properly. This is to reduce
leakage within the budgeting for the purposes of the country. By managing the right system,
corruption and other problems can be prevented and the citizen does not need to put more effort
in recovering the tax minus.

The last is to maximize the importance of tax to the citizens of the country. The citizen
will become aware of the matters of the country. There are plenty of ways to do this, one of them
is transparency. It can raise the awareness and trust of the people towards the government.
By doing this the government may increase the effectiveness of tax for the citizens. Thus, it will
help them gain trust from every level of citizens to reduce the thought of unfair tax value for
each individual.

6) CONCLUSION.

Most government money comes from taxation. and Loan, donation, and creation of paper
money are simply additions. Government revenue will raise government spending. As the money
supply increases, government spending also increases. The people will save and invest most of
their extra funds. An increase in investments will lead to more employment with higher incomes.
Investing in the producing business will provide increased economic output. Most people will
become more useful. In order to enhance government income. Taxing the rich people more will
be great. The increased government spending will boost economic development. However,
taxing the wealthy more than others may reduce investment also. They will assume that
investment is unproductive since their revenue will be taxed. This might negatively affect
employment and production creation as well as the country's economic development. Having a
heavy tax burden placed on the wealthiest is also disadvantageous since the wealthiest will
transfer the tax burden to the poor in the long term. The only individuals who will gain from the
price increases are the wealthy. As a result, the national economy will also suffer as poverty
levels grow.

7
REFERENCES.

Pajak.go.id. 2021. Asas Pemungutan Pajak | Direktorat Jenderal Pajak. [online] Available at:

<https://www.pajak.go.id/id/asas-pemungutan-pajak> [Accessed 4 June 2021].

Pettinger, T. (2019, Mar 23). The impact of taxation. Economicshelp.

https://www.economicshelp.org/blog/145810/economics/the-impact-of-

taxation/#:~:text=Higher%20tax%20leads%20to%20lower,Income

%20effect.&text=Therefore%2C%20the%20income%20effect%20means,the%20need

%20to%20work%20longer.

Secularist10. (2020, February 19). Why the Rich Should Be Taxed More.

https://discover.hubpages.com/politics/Why-the-Rich-Should-be-Taxed-More-the-

Economic-Case

Urban Institute, Brookings Institution, and individual authors. (2021, Feb 01). Tax policy

center briefing book Some Background. Tax policy center.

https://www.taxpolicycenter.org/briefing-book/how-do-taxes-affect-economy-long-run

Warren Buffett Quotes. (2021, June 6). BrainyQuote.com.

https://www.brainyquote.com/quotes/warren_buffett_413412

8
Wessel, D. (2019, Oct 19). Who are the rich and how might we tax them more?

Brookings. https://www.brookings.edu/policy2020/votervital/who-are-the-rich-and-how-

might-we-tax-them-more/