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Taxation

The ideal tax system

“The ideal tax system … is neutral to business activity. In such an ideal system, individuals and businesses would base their economic decisions solely on the merits of the transactions, without regard to tax implications. In reality, tax-induced economic distortions are a fact of life, and a more realistic goal is to maximize the occasions when businesses and individuals are guided by economics, and minimize those cases where economic decisions are micromanaged or even dictated by a tax system. Therefore, the most competitive tax systems, and the ones that score best in the SBTCI, are those that create the fewest distortions by enforcing the most simple tax system based on broad bases with low rates.”

This is an excerpt from a great article on simplifying the tax system in ways that don’t automatically mean a flat tax. The tax system’s complexity doesn’t stem from brackets. It is caused by the overabundance of various tax credits and other deductions applicable only to certain groups of people in certain specified situations.

3 replies on “The ideal tax system”

No idea… There are no major parties that support this radical movement. Harper is guilty of seeking to complicate the Act with his child sports credit when he should be supporting more simplification.

How about we get rid of the basic personal amount and spend the savings on lower rates for all brackets? Seems fairer to me!

[…] The Tax Foundation’s Tax Policy Blog has an interesting post concerning a report produced by something called the (US) Congressional Research Service. The report investigates the possibility of a flat tax in simplifying the tax code and concludes that the existence of a progressive system isn’t what is making things complicated at all. I’ve already blogged the very same thing – tax brackets don’t make taxes complex! The post makes the good point that its the erosion of tax bases that complicate the system and that simplifying taxes means simplifying the bases, which will allow the lowering of rates across all brackets. Technorati Tags: tax progressive income tax consumption tax government […]

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