The Taxation of Household Savings as Presented by the Mirrlees Review Case Study

The Taxation of Household Savings as Presented by the Mirrlees Review Volume 2 - Case Study Example In essence, while considering the economics of the tax system was essential in ensuring that it was effective, the commission acknowledged that approaching the tax reform from an economics perspective only would have created more problems than solutions (Mirrlees 2011, pp. v-vii). The Mirrlees review considers at length the apt method for the taxing savings. Thoughtful deliberation was applied to opinions on taxing savings normal returns (Chote 2012, p. 12). Four issues emerged in the review. The first issue was that the choice to defer consumption provided information on earning capacity. The second issue was that cognitively competent individuals were more likely to engage in a saving culture. The third issue was that taxing independent saving could have influenced the decision to pick financial saving on capital investment. This was especially true when there were credit limitations, and calculating and offsetting the full cost of the capital investment was challenging. The fourth issue was that taxing savings was likely to raise the labor supply of savers to counter to the likelihood of losing their earning capacity but who discern that, based on actual results, they did not need to save for the original reason. Or it may be that future consumption is a co mplement to current leisure (Mirrlees et al. 2012, p. 670). Mirrlees (2011, p. 283) reports that savings taxation plan plays a key role in the evaluation of the tax system. This is because it; is a characteristic of the tax base, is a determinant of tax system recognizing interpersonal differences in incomes, differentiates personal income from company profits, affect both incomes and savings, and affects saving habits. The report further recommends that savings resultant from variances in the timing of donated incomes comparative to the preferred time stream of consumption, or in time inclinations for consumption should not be taxed.