Comparative Analysis: Tax Systems of the US and New Zealand

This report provides a comparative analysis of the tax systems of the United States and New Zealand. It begins with an introduction that highlights the US tax system's reliance on labor taxation and the perceived fairness of New Zealand's system. The report then delves into the specifics of New Zealand's tax system, emphasizing its simplicity, lack of inheritance tax, and absence of certain taxes like payroll and social security. It contrasts this with the US system's complexity. The report explores potential learnings for the US, suggesting a simplification of its tax code and a shift in the tax burden from lower and middle-income groups to corporations. It discusses the advantages and disadvantages of such changes, including potential revenue loss. Finally, the report considers alternative revenue sources and concludes by reiterating the potential for the US to adopt aspects of the New Zealand model to reduce complexity and adjust tax burdens. References from various sources are also included to support the findings and arguments presented.

Running head: COMPARISON OF TAX SYSTEMS
Comparison of Tax Systems
Name of the Student
Name of the University
Author Note

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Table of Contents
Introduction..................................................................................................................................2
Analysis of the tax system of New Zealand.................................................................................2
Learnings for the U.S...................................................................................................................3
Advantages and disadvantages of changing the system...............................................................3
Alternative to tax revenues..........................................................................................................4
Conclusion...................................................................................................................................4
References....................................................................................................................................5

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Introduction
In the United States, the taxes collected by the Federal government are the major source
of revenue to spend on various aspects like social insurance, national defense, net interest
payments and government debt. However, like many other developed countries, the major
problem with the U.S. tax system is that it competes to charge more from the labor than from the
capital sources that are chargeable under tax (Altshuler & Goodspeed, 2015). This is the reason
why people continue to dread the tax system in the country and consider it unfair. New Zealand
has been considered to have one of the best tax systems in the world. This is because of the
fairness in the collection of taxes and in their spending by the government.
Analysis of the tax system of New Zealand
The tax system of New Zealand is renowned for its simplicity, fairness and for having a
minimum number of loopholes in the law guiding it. Some of the major characteristics of the tax
system in New Zealand are the absence of inheritance tax, capital gains charged only on specific
investments and an absence of state and local authorities’ tax. There is also the absence of the
payroll tax, social security tax and healthcare tax. There is only a minor charge for the healthcare
scheme that is based on the regulations under the New Zealand’s Accident Compensation injury
insurance scheme (ACC). Income tax and Goods and Services Tax is the major source of
funding for the government to use the amount for the benefit of its citizens. In case of
individuals, the highest tax rate is at 33% while the lowest tax rate is charged at 10.5% ("Money
& Taxes in New Zealand | New Zealand Now", 2019). The tax rate charged on corporates and
companies is at a flat rate of 28%. In the financial year 2016-17, the government collected
Crown Revenue totaling an amount of $81.8 billion. Tax revenue forms a major part of this
Crown Revenue and totaled at $75.6 billion. Out of this total amount collected by the

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government, the spending on Social security and welfare was $30.6 billion, $15.6 billion was
spent on health and $14.1 billion was spent on educational purposes ("Revenue and expenditure",
2019).
Learnings for the U.S.
On comparing both the tax systems, it can be suggested the main area of concern for the
United States tax system is its complex nature. While New Zealand does not have many of the
taxes mentioned above like social security tax, separate state and federal tax and capital gains
tax, the USA has all of them present in its taxation system. It can be said that it is not entirely
possible for the U.S. to adopt the tax system of New Zealand in its country without reducing its
tax revenues. The main reason for this is the differences in the individual tax rates in both the
countries. However, one aspect that could easily implemented by the United States is to reduce
the complexity of its existing tax system and make it more accessible for the citizens. Another
aspect that the U.S. could learn from New Zealand is to increase the taxes charged on corporates
and companies and reduce the burden that is being levied on the lower and middle income
groups in the country.
Advantages and disadvantages of changing the system
The main advantage of changing the existing system of the U.S. to that of New Zealand is
that it reduces the complexities involved in the tax system of the U.S. It also leads to
transparency in the manner in which the government in charging taxes from its citizens and how
it intends to use the amount so collected for the benefit of the citizens. There will be an increased
levy on the corporates and a reduction on the burden on lower income groups while also
providing them with the necessary support. The main disadvantage of adopting an identical
system to that of New Zealand is the fall in the revenues of the government. The tax rates

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prevalent in the U.S. in the current scenario are much higher than those charged by New
Zealand. The removal of state and local authority taxes leads to a decrease in the powers
available to those authorities while also leading to a decrease in the revenue available to them
that could be used for the benefit of their respective states and local governments (O’Connor,
2017).
Alternative to tax revenues
One of the alternatives that is available to the U.S. government to maintain its revenues is
to charge a minimum amount of tax on the foreign income in a tax rate similar to that charged
under the existing U.S. corporate tax rate (Shay, Fleming Jr. & Peroni, 2015). Some of the
methods through which the U.S government can collect more revenue from not charging high
amount of taxes from its citizens is by introducing the scheme of compulsory savings among its
citizens (Law 2016). This encourages the people to be more responsible towards the income
earned by them and spend it more wisely than pay a mandatory tax charge levied on them by the
government.
Conclusion
In conclusion, it can be suggested that the U.S. tax system has long become infamous for
the high rate of taxes charged by it on the citizens. While it can always pick up different policies
from various countries, it is not possible to completely change its existing tax system by basing it
on the policies adopted by a particular country. However, the U.S. can follow the New Zealand
model to reduce the complexity of its tax system and charge more taxes from the corporates than
the working class people.

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References
Altshuler, R., & Goodspeed, T. J. (2015). Follow the leader? Evidence on European and US tax
competition. Public Finance Review, 43(4), 485-504.
Law, D. (2016). Retirement income policy and national savings. New Zealand Economic
Papers, 50(1), 29-50.
Money & Taxes in New Zealand | New Zealand Now. (2019). Retrieved 28 August 2019, from
https://www.newzealandnow.govt.nz/living-in-nz/money-tax/nz-tax-system
O'connor, J. (2017). The fiscal crisis of the state. Routledge.
Revenue and expenditure. (2017). Retrieved 28 August 2019, from
https://treasury.govt.nz/information-and-services/financial-management-and-advice/
revenue-and-expenditure
Shay, S. E., Fleming Jr, J. C., & Peroni, R. J. (2015). Designing a 21st Century Corporate Tax-
An Advance US Minimum Tax on Foreign Income and Other Measures to Protect the
Base. Fla. Tax Rev., 17, 669.