Chapter 2
Tax Policy Issues: Standards for
a Good Tax
“The art of taxation consists in so
plucking the goose as to obtain the
largest possible amount of feathers
with the least possible amount of
hissing.”
Jean Baptiste Colbert
Basic Objectives of the Tax System
 In theory every tax can and should be evaluated on a
set of basic standards. In general a tax should be:
 Sufficient to raise necessary government revenues
 Convenient to administer and to pay
 Efficient in economic terms
 Fair to taxpayers required to pay
Sufficiency
 A Sufficient Tax—
 Generates enough funds to pay for the public goods and
services provided by the government levying the tax.
 Estimating the sufficiency of a tax system following
proposed changes in rates, base, or other characteristics of
the tax structure requires forecasting future revenues:
 Static forecast - assume base stays the same.
 Dynamic forecast - estimate change in base due to change in
rate.
 Such forecasts are notoriously difficult
Sufficiency—what does
government do when revenues
aren’t sufficient?
What would “cutting
spending” entail?
