What are the principles of taxation we should follow? It’s our system we should have a voice, right? Come let us reason together. An appropriate tax system is one raising revenue only the core functions of government require. The fundamental principles of our neutral and effective tax system are:
Simplicity: The tax code should be easy for the average citizen to understand. It should minimize the cost of complying with the tax laws. Tax complexity adds cost to the taxpayer, but does not increase public revenue. 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. When we contemplate changes in tax policy the changes should widely be open to public debate and much publicity.
Economic Neutrality: The purpose of the tax system is to raise revenue for core functions of government. The purpose is not control the lives of citizens, not to micromanage the economy. The tax system should have minimal impact on the spending and decisions of individuals and businesses. An effective tax system should have a broad base. It should use low overall tax rate and allow few if any loopholes. It should avoid multiple layers of taxation through tax pyramiding.
Are we there yet?
Nope, not yet. So far our system is neutral but is it fair? Our system must minimize the burden on the tax paying citizens. Raising money for the basic governmental functions is not enough.
Equity and Fairness: The government should not use the tax system to pick winners and losers. It should not shift the tax burden onto one class of citizens. Punishing success or “soaking the rich” is not a proper use for a tax system. The tax system should not engage in discriminatory or multiple taxation. It should not bestow special favors on any particular group of taxpayers.
Complementary: The tax code should facilitate a healthy relationship between the state and local governments. The state should always be mindful of how its tax decisions affect local governments. State and local governments should not work against each other. The taxpayer should never be caught in the middle.
Competitiveness: A low tax burden can be a tool for a state’s private sector economic development. Low tax burden helps by retaining and attracting business activity. A high-quality revenue system is responsive to competition from other states. Effective competitiveness is best achieved through economically neutral tax policies.
Reliability: A high-quality tax system should be stable. Organizations need certainty in taxation and in revenue flows. It should provide certainty of financial planning for individuals and businesses.
An appropriate tax system is one raising revenue only the core functions of government require. The fundamental principles of our tax system should include being neutral and effective.
