Raise adequate revenue—the tax system must produce enough revenue to pay for important national, state, and local priorities. It should also maintain fiscal stability. Stable and reliable public policies and programs need adequate and consistent sources of revenue. Additional revenue sources may be necessary.
Ensure equity in taxation—revenue-raising methods should consider people’s ability to pay and should, to the extent possible, achieve vertical and horizontal equity. Taxation should be progressiveIn taxation, a situation in which people with lower income pay a smaller percentage of their income than do people with higher income. , and people with comparable incomes should be taxed at comparable rates. Taxes and user fees may also be related to benefits derived from government services.
Foster economic neutrality—taxes should be as neutral as possible in their treatment of economic activity and should not unduly encourage behavior undertaken simply to avoid taxation. Often this can be achieved by a combination of a broad tax base and a low tax rate. In addition, taxes should not unduly hinder economic growth, induce inflation, or discourage savings. Taxes may be used to mitigate economic costs imposed on society that were not fully captured through market prices.
Balance policy goals and raising revenues—a balance must be struck between using the tax system to address social policy goals (through such measures as tax expenditures or earmarking revenue) and raising adequate revenues simply and equitably.
Promote administrative efficiency—taxes should be simple for taxpayers to understand and comply with, and as easy as possible to administer. The need to collect data on taxpayers and to enforce tax laws should be balanced against the protection of individual liberties and privacy.