What Are the Characteristics of a Good Tax System?

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The strongest tax systems create fairness, assure adequacy, simplicity, transparency and promote administrative ease according to the Oklahoma Policy Institute. Ultimately, strong and healthy tax systems create healthy and vibrant economies, and may even promote peace and create strong and stable governments.

The first condition, that of fairness or equity, asserts that all taxpayers should pay their fair share of taxes: none, ideally, pay too little tax and none too much. This condition is further broken down into two concepts of equity, which are horizontal equity and vertical equity. Horizontal equity stipulates that taxpayers in similar financial conditions (for instance, those belonging to the same socioeconomic class) should pay similar, and nearly identical, amounts of tax. Vertical equity asserts that taxpayers in higher tax brackets should pay the same proportion of income taxes as those who are less well-off. The concept of adequacy stipulates that taxes should provide enough revenue to meet basic societal needs: A country passes this test if, each year, there is enough economic activity and growth to fund local, regional or national costs of services while keeping tax rates relatively low. Transparency asserts that taxpayers and leaders can and should have easy access to information on the tax system and how tax money is used; lastly, administrative ease assures that a tax system is not too complicated or complex for taxpayers and tax collectors to understand and navigate.