As the House and Senate negotiate their tax plans, it is important that the offers and counter-offers put forward align with the principles of sound taxation. The answers to practical questions about taxes – like how high or low should they be, who should pay how much, what should be taxed – truly should flow from rock-solid principles based on the best available research and evidence.
Here are a few principles that policymakers should keep in mind this weekend:
- A tax system needs to pay for services needed to promote economic growth, public safety and many other important functions. Both short- and long-term adequacy are critical.
- Equity needs to be built in. That means, for example, that lower income households don’t pay a higher share of their income in taxes than do high income households; and that people in similar economic situations pay roughly similar taxes.
- A tax system needs to be constructed in ways that avoid, to the extent possible, unpredictable, large fluctuations in the amount of revenue collected in a given year.
- The amount of revenue collected should increase as the economy expands, reflecting the increased needs for education, transportation and many other services.