ABSTRACT

There are many ways to survive on this land. It depends on the ways that an individual would demonstrate his/her action. Mr. XY is a leader of Liberia for six (6) years, and he is to run for another presidential term in the May, year 2002. For the coming election, rumors speculating that tax rate is very high, and the government cannot survive with out tax. Will XY party run the campaign on the tax reduction or increasing tax? The consequence is the one that does matter.

INTRODUCTION----------------------------------------------------4

BRIEF HISTORY----------------------------------------------------5-6

DEFINITION---------------------------------------------------------7

TAX REDUCTIONS-------------------------------------------------7

REDUCING BUSINESS BURDENS------------------------------7

ENCOURAGE INVESTMENT-------------------------------------7-8

IMPROVE TRANSPORTATION----------------------------------8-9

ADVANTAGES-------------------------------------------------------9

DISADVANTAGES--------------------------------------------------9

REMARKS-------------------------------------------------------------10

CONCLUSION--------------------------------------------------------10

RECOMMENDATIONS---------------------------------------------11-13

REFERENCES ---------------------------------------------------------14

INTRODUCTION

This paper is basically stressing on Tax reduction wish Mr. XY as a president of the Republic of Liberia has decided to carry on his campaigns just to win the election for the second term in the office. This paper will be divided into five parts; the historical developments that will briefly explain about the way taxations came into existence and what effect have it done to the nation, definition is there to give the clear meaning of what taxation means, the body wherein would give the detail explanations/ the frame work of the Fomba leadership regarding the tax reduction and it result, positive and negative, remarks and conclusion.

BRIEF HISTORY OF TAXES

In 1797, Britain was threatened as seldom in its history: French armies were spreading revolution to the Netherlands, Germany and northern Italy; French troops were sailing to help Irish rebels at Bantry Bay; British sailors were mutinying at Spit head. Prime Minister William Pitt, straining to muster every resource to protect the beleaguered British crown, resorted the next year to a measure that politicians have embraced ever since - an income tax. It worked with "unparalleled effectiveness," reports Carolyn Webber and Aaron Wildavsky in their History of Taxation and Expenditures, producing one fifth of the revenues Britain needed to survive and prevail.

The income tax may seem a modern invention; many Americans can remember when most ordinary people did not have to file returns. But Pitt did not invent the income tax in 1798. Italian city-states in the 1200s and 1300s levied a tax called the dazio on mercantile property in time of war - occasionally several times a year. Napoleon's France taxed income from trades and professions. Holland, that most urbanized part of Europe, levied its first income tax in 1797, Austria in 1799, the Duchy of Baden in 1808, Russia in 1812, the year Napoleon invaded.

History suggests that governments tax incomes (a) when they reach a level of commercial development where many citizens have cash incomes and (b) when they are fighting wars. America's first income tax came in 1861, to help pay for the Civil War; the Union imposed a 3 percent tax on incomes over $800 a year, which exempted most wage earners and, of course, those with little or no cash income. The tax rate was raised in 1862 to 5 percent on incomes over $10,000. (The Confederacy, with an agrarian economy in which capital consisted largely of illiquid land and slaves, did not rely on an income tax.)

No war, no tax. The converse of history's rule would seem to be: When the war is over, get rid of the tax. Pitt's income tax, attacked in a protest to Parliament as "hostile to every sense of freedom, revolting to the feelings of Englishmen," was repealed in 1815, as Napoleon was shipped off to exile in St. Helena. The Civil War income tax was repealed not long after Appomattox. But ominously, the Bureau of Internal Revenue remained in existence. And budget-balancing statesmen have turned to an income tax even in peacetime, usually to replace revenue lost by cuts in tariffs. That was the purpose of the income tax passed by Congress in 1893 and ruled unconstitutional by the Supreme Court in 1895. President William Howard Taft pushed a constitutional amendment to reverse that decision, and an income tax was passed as soon as the 16th Amendment was ratified in 1913.

At first the new income tax was a luxury tax: Top rates remained below 10 percent, and most Americans didn't pay at all. But then came war. World War I raised the federal budget from $1 billion in 1916 to $19 billion in 1919; income tax rates rose to 3 percent on $2,000 and 70 percent on $1 million. After the war, Treasury Secretary Andrew Mellon reduced the top rate to 25 percent and got most taxpayers off the rolls by raising the minimum income subject to tax. But he also cooperated with Congress to create preferences, exemptions, deductions and other tax breaks. The income tax had gotten the federal government deeper into the business of allocating economic resources, mostly out of public view.

The same thing happened, on a much larger scale, during World War II. As federal spending rose from $9.6 billion in 1940 to $95 billion in 1945, income tax rates were raised to 19 percent on $2,000 and 88 percent on $200,000, and the number of taxpayers rose from 14 million to 50 million.

The World War II tax is the recognizable ancestor of today's federal income tax. The $500-per-dependent exemption of 1944, raised to $600 in 1947, was a generous allowance to the parents of the baby boom generation; it meant the average family paid almost no income tax. But over time, inflation eroded the value of the exemption. Top rates were not reduced much by the Republican leaders of the 1950s, who feared voters' resentment of the rich; 1960s Democrats, who wanted to stimulate the economy, reduced them.

The experiment in maintaining wartime's high tax rates during peacetime in order to pay for the cold war and to redistribute money to the middle class and poor worked - economically and politically - for a generation. Then it stopped working economically. In the 1970s, runaway inflation, fueled in part by Lyndon Johnson's refusal to raise taxes to pay for the Vietnam War, propelled ordinary families into tax brackets intended for the rich, while the myriad tax breaks available to the wealthy made a mockery of fairness. As state, local and other tax rates also rose, a middle-class tax revolt helped fuel the Reagan Republican victories of the 1980s and 1994. Politicians have been struggling ever since to reduce income tax rates to peacetime levels that the public - and the economy - will tolerate. (Barone, 1994).

DEFINITION

Taxation: Rising of revenue to pay for government expenditure. Broadly speaking a tax can be described as direct or indirect: income tax is paid directly to the government, but sale taxes are collected indirectly through government or regressive; income tax is usually progressive (its rate rises as the taxable sum increases); sale taxes tend to be regressive (their burden decreases as the taxpayers income increase).

TAX REDUCTION

Tax will be reduce during my leadership for the fact that many citizen could able to get a loans to do their business and to also enlarging farming. My leadership will only do this by doing the followings.

REDUCING BUSINESS BURDENS

To improve business competitiveness the government must make greater strides to reduce the burdens on business. The government should:

introduce a learning space of at least 4 months between a regulation being approved and coming into force;
establish a business-led tax simplification task force;
adopt measures which either compensate small businesses for the use of their payroll to pay taxes and distribute benefits, or a system that avoids using employers payroll.

ENCOURAGING INVESTMENTS

To improve Liberia productivity and encourage investment in equipment and people the government should:

reform capital gains tax (CGT), reducing the business asset tapering rate to zero, and abolishing the current minimum shareholding thresholds;
make permanent the enhanced capital allowances for small and medium sized businesses;
introduce a Business Investment Savings Account (BISA);

provide a training tax credit for small firms who demonstrate a significant commitment to developing the skills of their workforces through the achievement of Investors in People.

As part of the governments agenda to improve Liberia productivity the government will announce various policies in the year that could encourage employee share ownership and provide additional incentives for business to innovate and invest.

The various amendments made to the governments original proposals, for example, lowering the minimum threshold on spending for companies to qualify for tax credits from $40,000 to $25,000 a year, and raising the maximum turnover limit from $8.2 million to 15 million a year are positive developments.

IMPROVING TRANSPORT

To reduce the costs to business and the economy of transport inefficiencies the government should:

abandon plans to introduce workplace parking charges, which will only hinder business competitiveness by adding to costs;
provide a fund from which local authorities may borrow against future income from road user charging in order to invest early in transport infrastructure.

In UK the 1992 election campaign, the twin issues of taxation and public expenditure dominated most. The re-election of a Conservative Government for a fourth term has reinforced the view that the UK voters seemed to prefer the party that made pledge to reduce taxation rather than the party that was most likely to increase taxation. During the 1992 election electors were offered very distinct choices between individual and public consumption, with the Conservative Government pledged to make the reduction of taxation central to its election strategy. Conservative Party wanted to show that it was committed to reducing taxation whilst improving the quality of public services. (Mullard, 1993).

But lower taxes and a prudent approach to borrowing do not mean public spending must fall; quite the reverse. A light-taxed economy generates more economic growth, and more revenue. The Conservative was able to raise public spending by nearly a quarter in real terms. (Mullard, 1993).

ADVANTAGES

It would enable my party to win a majority vote during the coming presidential election.

It would encourage many people to do more saving in to the bank.

It will encourage more business people to come in to the country, with this unemployment rate will decrease.

It would encourage the citizen to go for more loans, to do their farming or business.

With more farming and businesses in the country, the economics growth would be strong in the country.

DISADVANTAGES

The government will have to spend more if it is prepared to raise personal taxes to fund any project.

It is likely that the government will experience budget deficit at end of the year.

Next party that would take over after the term of the wining party shall experience some difficulties on budget deficit, which will affect them in the future.

If any ruling parties attempt to increase tax in the country, shall cause political instability in the country.

REMARKS

My leadership will only increase spending if it is prepared to fund it through additional personal taxation;
I have to investigate further options for using the tax system to encourage savings and investment;
My leadership will have to evaluate the practicality of introducing a counter-cyclical fund to provide an alternative to interest rates to control consumer demand.

CONCLUSION

This case is a very controversy problem where by individuals can only say what they think is good for the improvement of such phenomenal in the country. I can only say that reducing tax in the country does no harm, provided the government is honest to the state. Although there would be some difficulties, such as budget deficits but there could be more improvement in the area of development and economics diversification. In such, I therefore proposed these recommendations.

RECOMMENDATION
To improve Liberia productivity and encourage investment in equipment and people the government should:

reform capital gains tax (CGT), reducing the business asset tapering rate to zero, and abolishing the current minimum shareholding thresholds;
make permanent the enhanced capital allowances for small and medium sized businesses;
introduce a Business Investment Savings Account (BISA);
provide a training tax credit for small firms who demonstrate a significant commitment to developing the skills of their workforces through the achievement of Investors in People.

The increasing mobility of companies makes it important that taxes on business will be competitive in Liberia. Businesses facing severe competition in home and export markets we would expect the government to make in-roads into reducing the overall tax burden on business in the Budget.

Liberia has to relatively low ratio of capital to labor compared with other industrialized countries. To improve productivity we believe more needs to be done to promote business investment

To encourage investment in people, we support the recommendations of the governments Skills Task Force, specifically that: all adults who do not hold a qualification at level 2 or above should be entitled to the opportunity of achieving one through publicly-funded education and training;

a new system of income-contingent loans should be made available to support adult learners pursuing recognized qualifications;
the new Small Business Service should encourage and promote best practice in management through the facilitation of peer-group networks;
a tax credit should be introduced for small firms who demonstrate a significant commitment to developing the skills of their workforces through the achievement of Investors in People, and the government should review the tax position of other employer activities which support workplace learning.

In the present economic climate we would be concerned if spending was to increase significantly if this was not funded by increased personal taxation.

I recognized the desire to invest more in certain priorities, but this should not be at the expense of further damage to business competitiveness.

To achieve a more balanced economy, I suggest in our Budget submission that the government:

provides additional tax incentives to encourage greater pension provision. This would help control domestic demand and be particularly appropriate during the next couple of years, with the governments introduction of stakeholder pensions.

Looking more towards the medium term we would like to see additional disciplines on government to ensure that fiscal policy supports monetary policy.

An idea that we think warrants further investigation and which would require careful evaluation is the use of a counter-cyclical fund, whereby employee national insurance rates fluctuate, building up a surplus fund which is used to control demand when growth is strong, to use to boost demand when growth is weak.

If the government decides to increase spending in the Budget, and is prepared to fund it through additional personal taxes, we believe the priorities should be

tackling disparities in regional growth rates through targeted investment aimed at addressing structural problems, for example poor transport infrastructure;

real improvements in public transport, which need to be forthcoming as early as possible if the governments policies on road charging are to be accepted. A problem local authorities face with road charges is that they must translate a future revenue stream into capital investment now. What local authorities need is a source of funds for investment in transport projects that they can borrow from, to be repaid from future road charges. We believe central government should provide such funding.

Looking further ahead to the next Comprehensive Spending Review, I believe the governments priority should be to tackle the economys structural and productive weaknesses, which prevent it achieving higher rates of growth.

REFERENCES

Harkavy Michael D. 1996, The New Websters International Encyclopedia, Publish by Trident press International, 801 12^th Avenue south, suite 302, Naples, Florida 34102, U.S.A.

Mullard, 1993, In UK the 1992 election campaign, the twin issues of taxation and public expenditure dominated most. The re-election of Conservative Government for a fourth term.

The following was written by US News and World Report writer Michael Barone (Dec. 12, 1994). I have elected to reproduce the article in its entirety; any mistakes in reproduction are entirely mine.