low rate
broad base
base is directly connected to ability to pay
easy to comply with, difficult to avoid
raises significant revenues
Taxes are the financing mechanism for public goods. You can’t buy schools or roads or police or courts or prisons with a credit card. Taxes have a bad name, but they don’t have to be regressive, onerous, or even much more than an overhead charge. They can provide financing for the structure of public goods and services without distorting the private markets or the purchase decisions of the public.
What makes a good tax?
The Low Rate:
The Broad Base:
- the tax is not worth avoiding, so compliance is better
- the tax does not distort markets or decisions
- it can be viewed as an overhead charge for the operation of the underlying systems needed for the economy
Connected to Ability to Pay
- a large amount of revenue can be generated from a low rate
- everybody pays, the burden is shared and thus less on each payer
- again, it is an overhead charge
Easy to Comply With, Difficult to Avoid
- compliance is easier
- perceived fairness is easier
- the tax goes up and down with the underlying economy
Raise Significant Revenues
- normal business accounts should yield the tax base without complicated adjustments
- the tax obligation should be easily understood
- multiple rates should be avoided
- evasion should be obvious
- changing jurisdictions should have no effect
- reducing annoyance taxes and fees reduces collection complications
- revenues should be allocated by policy decisions, not collection details
- a large revenue base is often a stable revenue base
