A tax system is considered adequate if it collects enough revenue to pay for the services required by residents and policymakers. One threat to the adequacy of a tax system is a structural deficit. In states with a structural deficit, revenues do not grow at the same rate as the costs of providing government services. If revenues do not keep up with these increased costs, the state must either raise taxes or cut services. The main area of thought on tax fairness is the ability to pay principle. The transparency of a tax system indicates whether or not information about the tax system is easy to obtain. Available information should include who and what is taxed, the process for making tax decisions and how the funds collected are spent.
In developing a plan for paying off its outstanding obligations, the Legislature may want to consider how these payments will affect school and community college spending (LAO, 2014). When assessing a tax system the various ways the stakeholders are taxed, from property taxes, sales taxes, income taxes, and lotteries, the following five criterions come into play:
- Revenue Growth: Revenue sources that “grow along with the economy” are what stakeholders want. The growth factors for property taxes are recently sold properties, newly built and property improvements, parcel and Mello-Roos taxes (Lao.ca.gov, 2012, p. 27).
- Revenue Stability: This is when the property tax is a stable revenue source and remains “relatively stable from one year to the next”. These stable resources assist the government plan for future needs more effectively (Lao.ca.gov, 2012, p. 28).
- Simplicity: This is based on transparency and the tax payer’s ability to understand the tax system. The more complex the system, the more expensive and difficult it is for the government to administer.
- Neutrality: This is the idea that the “ideal tax system is one that alters decisions – about what to buy, what products to make, and where to work or live – as little as possible”. Economists prefer these neutral taxes for it puts the people and businesses in the “best position” to make sound investment decisions for their personal and economical needs (Lao.ca.org, 2012, p. 30).
- Equity: This criterion relates to how taxes affect taxpayers with different levels of wealth or income. The two standards that Economists use are horizontal and vertical equity to evaluate taxes. An equitable tax system would all property owners at the same rate (Lao.ca.org, 2012, p. 32).
The best tax system would be neutral and equitable for all tax payers. It is difficult to see those with less equity in their homes pay the same amount of taxes that someone who has more equity in their home. Also, if the tax system is neutral, it will serve the growth of all individual’s economically and personally. Who doesn’t want their state’s tax system to help them, help their students, and help the economy?
Brimley, V. , Garfield, R. & Verstegen, D. (2012). Financing education in a climate of change.
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Lao.ca.gov. (2012). Understanding California’s Property Taxes. Retrieved from
Lao.ca.gov. (2014). The 2014-2015 budget: Proposition 98 education analysis. Retrieved from