What Are the Qualities of a Good Tax System?

Qualities of a good tax system include fair payment of taxes among citizens, an adequate tax base, transparency, administrative ease and simplicity, say authors at the Oklahoma Policy Institute. These five conditions create a sound tax system that ensures equal payment and representation among citizens and secures enough revenue to cover the cost of basic public services.

A good tax system mandates fairness, or equity, which means that taxpayers pay their fair share of taxes. This criteria breaks down into horizontal and vertical equities. Horizontal equity states that people of the same income level should pay the same amount of taxes. Vertical equity means that people receiving higher annual incomes should contribute the same amount of their incomes to taxes as people of a lower socioeconomic status. Vertical equity breaks down further into regressive, proportional and progressive taxes. In addition to creating equality among citizens, equity helps establish an adequate tax base to ensure the pooled tax income from all citizens pays for all public needs, say authorities at the Oklahoma Policy Institute.

Transparency also forms an important pillar of a solid tax system. Transparency sheds lights on how much people pay in taxes, who benefits from those taxes and where the tax money goes. Lastly, administrative ease facilitates and clarifies the tax payment process for taxpayers and tax collectors. It sets a standard for state audits and presents taxpayers with payment information in clear, simple language.