Most economists believe that consumers' spending decisions follow the broad criteria outlined in the life cycle and permanent income theories – two closely related assumptions that , in the remainder of this article, are treated as a single theory. . According to this theory, consumers want to maintain growth in their spending throughout their lives. Thus, consumers will be reluctant to increase or decrease their spending in response to a change in income unless they believe that the change in income will persist. The shorthand formulation of this idea is that spending responds to changes in “permanent” income. Applying this theory to tax changes, we conclude that consumers will be more likely to change their spending behavior if they perceive a tax change to be lasting. Say no to plagiarism. Get a tailor-made essay on “Why Violent Video Games Should Not Be Banned”? Get an original essay. For example, a reduction in income tax rates or an increase in personal exemptions permanently written into the tax code should have a greater effect on the consumer. spending rather than a temporary reduction in rates or an increase in exemptions. Another element of the theory that influences tax changes and spending is the assumption that consumers are forward-looking. This premise suggests that consumers not only distinguish permanent from temporary tax changes, but also anticipate the impact of a tax change on their income even before it takes effect. For example, consumers may begin to adjust their spending immediately after a tax change is passed, or even when the contours of the change begin to become clearer – developments that may occur well before the change actually begins to affect the economy. payment of taxes. Indeed, if consumers take a long-term view, changes in the legal structure of tax obligations should influence their spending decisions more than changes in the timing of tax payments. After all, one might expect that a change in the structure of annual debts would have a greater effect on permanent after-tax income than a revision of withholding tax schedules or a change in tax requirements. regarding quarterly payments without withholding tax. of recommendations on business taxation proposes to abolish the current system of corporate tax rates and replace it with a land value tax system, thus replacing one of the most distorting taxes in the system current through a neutral and effective tax. Corporate tax rates are not a good tax, they discriminate between different types of businesses, and they discourage commercial real estate development. Our second proposal concerns the treatment of small businesses and self-employment. The current system distorts choices regarding organizational form, namely the choice between employment and self-employment on the one hand, and the choice between running a sole proprietorship or a small business on the other hand, as well as decisions regarding the form of remuneration. For example, a sole proprietor of a small business, whether or not he or she pays himself in the form of salary or dividends. These discrepancies are unfair and lack clear justification. The difference between the corporate tax rates paid by companies with higher profits and.