Function:
The proper function of taxation is to raise money for core functions of government. It is not the function of taxes to direct the behavior of citizens. Closing the budget gaps created by overspending too is a misuse of taxation. This is true regardless of the size or level of government.
Taxation always imposes some level of burden on economic performance. That harm can be minimized. To do so policymakers must resist the temptation to use the tax code for purposes other than raising revenue. The purpose of the tax code is not for social engineering, class warfare and other extraneous purposes.
A principled tax system is the way to promote prosperity. It benefits the residents and advances a state’s economic interests.
These fundamental principles provide guidance for a neutral and effective tax system. A neutral and effective tax system raises needed revenue for core functions of government. At the same time it minimizes the burden on citizens.
Simplicity:
The tax code should be easy for the average citizen to understand. It should minimize the cost of complying with tax laws. Tax complexity adds cost to the taxpayer. At the same time it does not increase public revenue. For governments, the tax system should be easy to administer. It should help promote efficient, low-cost administration.
Transparency:
Tax systems should be accountable to citizens. Taxes and tax policy should be visible and not hidden from taxpayers. Changes in tax policy should be highly publicized and open to public debate. There will be more to come on the pages long list of tax increase proposals before New Hampshire’s legislature this session.
Economic Neutrality:
The purpose of the tax system is to raise needed revenue for core functions of government. It does exist to control the lives of citizens and not to micromanage the economy. Business and personal decisions should not have to be made with taxes as a primary consideration. The tax system should exert minimal impact on the spending and decisions of individuals and businesses. An effective tax system should be broad-based. It should utilize a low overall tax rate with few loopholes. An effective tax system avoids multiple layers of taxation through tax pyramiding.
Equity and Fairness:
The government should not use the tax system to pick winners and losers in society. It should not unfairly shift the tax burden onto or off of one class of citizens or business. The tax system should not be used to punish success or to “soak the rich”. The government should not engage in discriminatory or multiple taxation. The tax system should not be used to bestow special favors on any particular group of taxpayers.
Complimentary:
The tax code should help maintain a healthy relationship between the state and local governments. The state should always be mindful of how its tax decisions affect local governments. It is important that the levels of government not work against each other nor should services overlap or conflict. The taxpayer should never be caught in the middle.
Reliability:
A high-quality tax system should be stable. It should provide certainty in taxation and in revenue flows. It should provide certainty of financial planning for individuals and businesses.
