Policymakers use the tax system to raise revenue and to promote social policy goals. For example, they may want to encourage desirable behaviors, such as home ownership.
How to improve the tax code is the subject of much debate. Proponents of reform often call for increasing fairness and simplicity.
Any further efforts to address marriage penalties should be targeted to two-earner couples and structured to avoid increasing marriage bonuses.
There are two main ways for governments to collect taxes. One is by taxing income directly. This is known as an income tax. The other is taxing only income that is spent.
Tax reform should focus on raising sufficient revenue. It should make the tax system more equitable and efficient.
States should increase the progressive nature of their income tax systems.
Reforming business taxes, such as the corporate tax or a tax on the financial industry, should be considered in any effort to raise additional revenue.
States with income taxes should allow credits for taxes paid by their residents to other states so that no taxpayer is subject to double taxation.
Currently, some types of income are either taxed at lower rates than ordinary income or are exempt from taxation to some degree.
In general, only cash income is subject to the income tax. In-kind benefits—benefits that are received as goods or services rather than as cash—are not.