Foundations

Key Points

1. The primary purpose of taxation is to raise the revenue necessary to finance government spending.
2. Taxes distort economic decisions and reduce the incentives to save, invest, or work.
3. Tax systems with low rates and broad bases are the most effective foundation for an efficient, growing economy.
4. Reforming the current tax code must be done in conjunction with rigorous spending controls.

How To Think About Tax Reform

• Federal spending is expected to grow considerably in the future, almost entirely from Social Security, Medicare, and interest payments on the debt.
• If we don’t change our spending path, income and payroll taxes will have to rise so much that many middle-class families will face marginal tax rates of over 60 percent.
• Tax systems with low rates and broad bases are the most effective foundation for an efficient, growing economy.
• Many of the problems of our tax system result from taxing income rather than consumption, because income is much more complex and far easier to avoid or evade.
• Taxing consumption is more efficient, but politically difficult to do.
• In general, taxes decrease the returns to working and saving.
• Any new tax system should only be on the table if it is not only revenue-neutral, but accompanied by enforceable spending controls.
• Tax reform combined with spending cuts will help the country remain a prosperous, stable democracy.