Guiding Principles of a Fair and Effective Tax System Prepared for the Washington State Tax Structure Committee
The proper function of taxation is to raise money for government. This is true regardless of whether government is big or small, and this is true for lawmakers at all levels of government. Taxation always will impose some damage on an economy's performance, but that harm can be minimized if policymakers resist the temptation to use the tax code for social engineering, class warfare and other extraneous purposes. A simple and fair tax system is an ideal way for advancing Washington's economic interests and promoting prosperity for its residents.
The fundamental principles discussed in this paper provide guidance for a fair and effective tax system; one that raises needed revenue for government, while minimizing the burden on citizens.
Today, Washington is the fifth most highly taxed state, measured per capita, in the nation. The people of Washington pay more to meet their tax obligation than they do for food, clothing and transportation combined. We also have one of the latest "Tax Freedom Days," the date each year on which citizens have earned enough to pay their tax obligation, of any state. Basic to the concept of a fair tax system is that the state should take no more from citizens than it needs to pay for the essential functions of government. This consideration goes beyond the need to balance the budget; it is a matter of fundamental respect and trust between citizens and their government.
Unfortunately, short-term political considerations usually drive tax policy. Many states have so-called highly "progressive" tax regimes, which punish those who add more wealth to an economy. Many lawmakers think of the tax code as a way to penalize "bad" behaviors and reward "good" ones. They have sought incessantly to guide, micromanage and steer the economy by manipulating the tax laws.
The federal government is the biggest culprit, but the tax policies of state governments often add to the problem. The result is less prosperity, tax systems that stifle entrepreneurship and hinder productive behavior. The only winners in a complex "progressive" tax system are the lawyers, accountants and entrenched interests who benefit from manipulating the system.
State tax policy has an added dimension, jurisdictional competition. It is relatively easy for individuals and businesses to move from one state to another. As a result, states that maintain onerous tax regimes almost certainly will lose jobs and growth to competing states. Competition also exists at the international level - which is why America is so prosperous compared to Europe, but state lawmakers are even more likely to reap quick rewards if they implement pro-growth, pro-opportunity tax policy.
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