Governing Magazine yesterday released its annual assessment titled ?The Way We Tax: a 50 State Report.? By governing magazine?s standards North Carolina came out looking pretty good, obtaining average or above scores in all of their categories. What is interesting to note is that this study is done completely from the government?s perspective. The three main categories for judging a state?s tax system are adequacy of revenue, management of system, and fairness to taxpayers. Now one might think that this last category might have a taxpayer perspective. Not quite. Below are GM?s criteria for fairness.
“Are similar taxpayers taxed similarly, and as a result is the broadest possible base being taxed at the lowest possible rates? Is the system overly regressive? How thoroughly does the state tax services? Does the sales tax on goods have a broad base with a minimum of unnecessary exemptions? Do the state?s taxes avoid excessive exemptions and deductions that are not means-tested? Is there anything extremely unfair about the state?s approach to corporate taxes (either due to gaping loopholes or out-of-line tax credits or incentives)? Is there anything extremely notable the state has done to make its corporate taxes more even-handed and less vulnerable to evasive tax planning? Are there any other unusual factors that should be considered in an evaluation of fairness (a dysfunctional property tax system, for example)?”
When one examines this statement, except for lip service about lowest possible rates (which is completely a function of the amount of spending), fairness seems to be about taxing as many people for as many activities as possible. They are concerned about ?unnecessary exemptions,? and ?the broadest possible base,? a system that is ?overly regressive? (i.e. that is not doing enough to soak the rich), etc.
In the section of their study on methodology, GM boasts that they interviewed tax collectors and bureaucrats in the process of doing their analysis, but interestingly enough they didn?t take the time to interview average taxpayers.
I would like to offer a different set of criteria for judging our tax system, in order of importance.
1. Does it advance liberty by allowing citizens to keep as much of the fruits of their labor as possible?
2. Does it refrain from penalizing productivity and success by avoiding a progressive rate structure and double taxing investment and saving?
3. Does it avoid wasteful costs by making it easy for taxpayers to comply with?
