Theoretical Issues in Taxation

* Reliability of revenue flow

- does the tax bring in money is a predictable and regular rate

-> for funding general government, it had better

- for special projects or one-time deals it doesn't matter

- if you can't predict the growth or decline of funding, a government can't plan

* Impact on the private economy

- Taxes that are too high can depress the private economy

-> if taxes on income are prohibitively high, people won't bother to work

-> if business taxes are too high, no one will open a new business

- any taxes suck money out of the economy that would otherwise be spent or invested

-> not a problem if the government puts the $ to good use, but…

- poorly designed taxes can push people into or out of businesses and activities irrationally

-> a tax break on some activity will suck people into that field

- generally speaking, a tax cut will speed the economy and a rise will slow it

* Impact on the citizenry

- taxes to build nice things are still to high if they cause people to starve

- if the economy is going down, raising taxes will simply increase pain

* Complexity

- if a tax is too complex, people will find it annoying to pay

- government may also find it impossible to correct properly

-> the more complex, the more chance of loopholes and legal challenges

* Matching of goals to taxes

- in general, taxes should apply to things that match the revenue source

-> property taxes pay for local schools, fire departments, and police

-> car tabs and licensing fees pay for transportation

-> taxes called social security should pay for social security

- obviously general government requires general taxes

-> sales or income taxes

- if taxes are too "apples for oranges" people may find them annoying

* Progressive, Regressive, or Flat taxation

- progressive means that the more money a person has, the more they pay

-> income, car tab, and the proposed "latte tax" are all progressive

-> to some, the rich should pay more because they have a duty to share

-> since government also benefits them more, the argument goes, they pay more

-> the "Robin Hood Effect" of progressive taxation can also ease problem of economic

inequality

=> can be important in avoiding rioting, crime, etc.

- regressive taxation means that the less a person has, the more they pay

-> sales taxes, consumption taxes, and others hit the poor as a higher % of income

-> these taxes tend to be more reliable, simple, and hard to avoid

-> it's obviously a bit unfair to tax the poor more if they can't afford it

- flat taxation means that everyone pays either the same % of their income

-> Property taxes do this. A 10-20% flat income tax is often proposed as well.

-> idea revolves around the fairness of everyone paying the same percentage

-> the rich would still pay more since they have more money

* Fairness

- if taxes seem unfair to the people, they will not pay them or will riot