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Revenue modernization should be based on principles

Note: This the final installment of a five-part series of posts on revenue modernization in advance of the release of the NC Budget & Tax Center’s 2011 Revenue Modernization Plan on Monday, February 21st.  You can read Part 1, Part 2, Part 3, and Part 4.

Updating the state’s revenue system for today’s economy will require a lot of detailed decisions by policymakers. It is essential that these decisions are based on principles to ensure a final outcome that supports long-term economic growth and shared prosperity.

The three principles that guided the Budget and Tax Center’s development of a revenue modernization plan that will be released on Monday are guided by the best evidence of what works for a revenue system to support public structures.

First, the revenue system must be adequate to support the ongoing need for investment in public structures. Such measures of adequacy must take into account not only historical trends but prospectively be able to respond to changing demand for certain services.

Second, a revenue system must be designed in way that ensures taxes are based on ability to pay. This means not requiring more from low-income households than the highest-income households.

Finally, the revenue system should minimize volatility in the face of ups and downs in the business cycle. Public structures require stable funding to effectively fulfill their missions and promote growth and prosperity.

Policymakers undertaking revenue modernization must focus on the big picture:  a revenue system that funds critical public structures, builds shared prosperity and supports economic growth. Principles of adequacy, equity, and stability can guide us to that goal.

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