Five broad principles guide AARP’s evaluation of tax policies. Proposals to reform the tax code, stimulate the economy, raise additional revenue for any purpose, or modify specific tax provisions should take into account these principles.
Revenue adequacy—the tax system must produce sufficient revenue to pay for important national, state, and local priorities and to maintain fiscal stability. Stable and reliable public policies and programs require adequate and consistent sources of revenue. Additional revenue sources may be necessary.
Equity—revenue-raising methods should consider people’s ability to pay and should, to the extent possible, achieve vertical and horizontal equity. Taxation should be progressive, 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.
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.
Social and other policy goals—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.
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.
Sometimes the above principles conflict with one another. In these cases, AARP may weigh the relative importance of each of the key principles. AARP’s position on tax policies takes into account the net fiscal impact of a given policy proposal, not only its tax component.
These principles may also apply to other aspects of government finance, for example, fees for government services or certain types of government spending.