Tax Reform


By: J. Scott Moody
Welcome to The Maine Heritage’s Policy Center’s new blog. The goal of the MHPC blog is to provide timely commentary on important policy issues. In particular, this blog will help “fill in” the time between studies. This first blog is a great example of this. One of my major tasks this year is to develop a fundamental tax reform plan for Maine. Naturally, this is long process. However, along the way there are useful bits of information that can be passed along in the course of my research to the general public and policymakers. In this blog posting I will share with you the four critieria that I will use to judge Maine’s tax system. Of course, the list is not set in stone and I encourage anyone who has any additions and/or subtractions to the list to please send me an email and I will evaluate them. The usual disclaimer applies to the MHPC blog in that all views are strictly the author’s and not necessarily those of MHPC–unless it is a reprint of MHPC work such as a press release or study. Enjoy :-)
Principles of Tax Reform.
1. Be Transparent: Taxes are the price of government. Unfortunately, today there are so many different types of taxes; taxpayers struggle to determine what exactly the price of government is. Imagine walking into a store where every shopper faces a different price because of differences in income, age, occupation, where they live, etc. Taxpayers face such a bewildering dilemma both among and within the multitude of taxes they pay that; ultimately, the price of government becomes so obscured that taxpayers are simply unable to weigh the benefits vs. the cost of government. A good tax system is designed to allow the taxpayer to easily determine the price of government.
2. Be Neutral: Paying taxes is an involuntary action and push taxpayers to alter their behavior to minimize their tax bill–taxing income reduces income, taxing retail sales reduces sales, taxing the value of property reduces its value. A good tax system is designed to reduce the influence of taxes on the behavior of taxpayers by taxing at a single point in the economy (income OR consumption OR wealth), having tax a single, flat rate and having a tax base that is broad (no exemptions, allowances or credits).
3. Be Simple: In addition to paying the tax, taxpayers must also spend time and money planning, complying and filing their taxes. This leaves less time and money for family and business. A good tax system is designed to minimize these tax costs on the taxpayer.
4. Be Stable: Taxpayers make many long-term decisions in the face of an uncertain world such as the decision to have children or to to buy a house. A good tax system should not be a source of additional uncertainty by changing continuously, by enacting temporary tax changes and, worst of all, by making tax changes retroactive.