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Five broad principles guide AARP’s evaluation of tax options. Proposals to reform the tax code, stimulate the economy, raise additional revenue for any purpose, or modify specific tax provisions should take into account these principles. Equity—Revenue-raising methods should consider people’s ability to pay and should, to the extent possible, achieve vertical and horizontal equity. Taxation should be progressive, and people with comparable incomes should be taxed at comparable rates. Taxes may also be related to benefits derived from government services. Economic neutrality—Taxes should be as neutral as possible in their treatment of economic activity and should not unduly encourage behavior undertaken simply to avoid taxation. Often this can be achieved by a combination of a broad taxable base and a low tax rate. In addition taxes should not unduly hinder economic growth, induce inflation, or discourage savings. Taxes may be used to mitigate economic costs imposed on society that were not fully captured through market prices. Administrative efficiency—Taxes should be simple for taxpayers to understand and comply with, and as easy as possible to administer. The need to collect data on taxpayers and enforce tax laws should be balanced against the protection of individual liberties and privacy. Revenue—The tax system must produce sufficient revenue to pay for important national, state, and local priorities and maintain fiscal stability. Stable and reliable public policies and programs require adequate and consistent sources of revenue. Social and other policy goals—A balance must be struck between using the tax system to address social policy goals (through such measures as tax expenditures or earmarking revenue) and raising adequate revenues simply and equitably. Sometimes the above principles conflict with each other. In these cases AARP may weigh the relative importance of each of the key principles. AARP’s position on tax policies take into account the net fiscal impact of a given policy proposal, not only its tax component. Economic neutrality—Typically taxes create some inefficiencies by distorting economic choices and thus people’s behavior in the market. One major goal of most tax reform proposals is to reduce these distortions and encourage stronger economic growth. Proponents of consumption taxes note that income taxes encourage consumption over saving. Integrating the individual and corporate income taxes would reduce distortions that influence how businesses are organized and how income is transferred from corporations to shareholders. By eliminating certain tax deductions and other preferences, fundamental restructuring of the current income tax would also improve the neutrality and efficiency of the tax system. Administrative efficiency—The degree of administrative complexity depends greatly on the form of the tax. A VAT can have high administrative costs because it increases the number of taxpayers and requires detailed record ke.

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