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A good tax system should meet five basic conditions: fairness, adequacy, simplicity, transparency, and administrative ease.
Although opinions about what makes a good tax system will vary, there is general consensus that these five basic conditions should be maximized to the greatest extent possible.
1. Justice, or equity, means that everyone should pay a fair share of taxes. There are two important concepts of equity: horizontal equity and vertical equity.
* Vertical equity is equally important, however. Vertical equity means that taxpayers are better must pay at least the same proportion of income in taxes as those who are less fortunate. Vertical equity involves classify it as a regressive tax, proportional or progressive.
* Regressive tax: the tax is regressive if people with low incomes pay a greater share of tax revenues compared with a higher income. Almost every tax on necessities, such as food purchased at the grocery store, is regressive for low-income people have to spend a greater share of their income on those needs. Oklahoma sales tax is one example.
* Tax Proportional: proportional tax if all taxpayers pay the same share of income in taxes. Nothing really proportional tax. Property taxes often comes closest because usually there is a close relationship between household income and the value of the property in which they live. Corporate income tax is often approached proportioned for one of the levels applicable to most company earnings.
2. Adequacy means that the tax should provide enough income to meet the basic needs of society. A tax system meet the test of adequacy if enough revenue to meet the demand for public services if the growth in revenue every year is enough to fund.
Self-balancing accounting structure with revenues, expenses, assets and liabilities are used to track the money flowing ...
the growth of the cost of services, and if there is sufficient economic activity of the kind that is taxed so that prices can be kept relatively low.
3. Simplicity means that taxpayers can avoid a maze of taxes, forms and filing requirements. A simpler tax system helps taxpayers better understand the system and reduces the costs of compliance.
4. Transparency means that taxpayers and leaders can easily find information about the tax system and how tax money is used. With a transparent tax system, we know who is being taxed, how much they are paying, and what is being done with the money. We also can find out who (in broad terms) pays the tax and who benefits from tax exemptions, deductions, and credits.
5. Administrative ease means that the tax system is not too complicated or costly for either taxpayers or tax collectors. Rules are well known and fairly simple; forms are not too complicated; the state can tell if taxes are paid on time and correctly, and the state can conduct audits in a fair and efficient manner. The cost of collecting a tax should be very small in relation to the amount collected.