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.

1. 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
keeping. But a VAT that replaces the income tax might not be any more costly to administer than
the existing tax system. Advocates of flat-rate consumption taxes claim that such schemes are
administratively simpler than the income tax, but that is true only if they contain no exemptions

2. or preferences. Revenue potential—Although consumption may be nearly as broad a base as
income, at the rates currently proposed, most consumption tax reform plans would result in a
significant loss of revenue. Social and economic goals—Currently the income tax code contains
provisions intended to encourage certain socially desirable goals, such as health insurance
coverage, retirement savings, labor-force participation by low-wage workers, and home
ownership, among others. The degree to which these provisions achieve their intended goals,
however, is subject to some debate and should be considered against the additional complexity
and costs they create. A major reform, such as introduction of the consumption tax, could
decrease some of these incentives and increase others.
Provide an example of an income tax provision with an economic goal.The Earned Income Tax
Credit (EITC) is the tax provision that I think of when it comesto economic goals. It allows tax
payers to pay less tax on their earnings, therefore havingmore money in their pockets. This
allows them to be more economically stable. Thisprovision also helps lower the unemployment
rates by encouraging people to get low-income paying jobs. Even though they may not see a lot
of money when they get paid,they end up seeing it at the end of the year.2.Provide an example of
an income tax provision with a social goal.The Child Tax Credit (CTC) is a prime example of a
tax provision with social goals. Taxexpenditures such as this can be aimed at both economic and
social oriented goals.However it’s more susceptible as being a social goal. I say this because in
my opinion itencourages families to have more children so they can get a bigger tax return for all
oftheir dependents. Both the EITC and CTC provide tax exemptions and breaks for.
Solution
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

3. 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
keeping. But a VAT that replaces the income tax might not be any more costly to administer than
the existing tax system. Advocates of flat-rate consumption taxes claim that such schemes are
administratively simpler than the income tax, but that is true only if they contain no exemptions
or preferences. Revenue potential—Although consumption may be nearly as broad a base as
income, at the rates currently proposed, most consumption tax reform plans would result in a
significant loss of revenue. Social and economic goals—Currently the income tax code contains
provisions intended to encourage certain socially desirable goals, such as health insurance
coverage, retirement savings, labor-force participation by low-wage workers, and home
ownership, among others. The degree to which these provisions achieve their intended goals,
however, is subject to some debate and should be considered against the additional complexity
and costs they create. A major reform, such as introduction of the consumption tax, could
decrease some of these incentives and increase others.
Provide an example of an income tax provision with an economic goal.The Earned Income Tax
Credit (EITC) is the tax provision that I think of when it comesto economic goals. It allows tax
payers to pay less tax on their earnings, therefore havingmore money in their pockets. This
allows them to be more economically stable. Thisprovision also helps lower the unemployment
rates by encouraging people to get low-income paying jobs. Even though they may not see a lot

4. of money when they get paid,they end up seeing it at the end of the year.2.Provide an example of
an income tax provision with a social goal.The Child Tax Credit (CTC) is a prime example of a
tax provision with social goals. Taxexpenditures such as this can be aimed at both economic and
social oriented goals.However it’s more susceptible as being a social goal. I say this because in
my opinion itencourages families to have more children so they can get a bigger tax return for all
oftheir dependents. Both the EITC and CTC provide tax exemptions and breaks for.