Ten Principles of Federal Tax Policy

Published November 2, 2010

The power to tax is the most ubiquitous of all government powers. It reaches directly or indirectly to all classes of people, all industries, all elements of society. Taxes always place at least some burdens on business, individuals, and the economy. They are a necessary evil. However, citizens should tolerate only those taxes that are lawful and used to support legitimate functions of government.

For these reasons, policymakers and legislators have a responsibility to adhere to sound constitutional and economic principles when levying taxes, and citizens have a moral and legal duty to hold legislators accountable for violations of these principles. This trust is vital since abdication of these principles threatens liberty. The Supreme Court stated as much in Citizens’ Savings & Loan, saying:

It must be conceded that there are such [private] rights in every free government beyond the control of the State. A government which recognized no such rights, which held the lives, the liberty, and the property of its citizens subject at all times to the absolute disposition and unlimited control of even the most democratic depository of power, is after all but a despotism.

Thankfully, there is a body of constitutional law and economic evidence to guide the design of a tax system consistent with constitutional limitations and economic principles. As the nation clamors for solutions to the challenges of ongoing annual deficits, local, state, and national debt, and stagnant or sluggish economic growth, a renewal of these fundamental principles is timely.

This booklet focuses on the federal income tax, since this tax collects by far the most revenue and affects the most people in the United States. However, the ten principles presented here apply to any tax system, whether national, state, county, or local. Because income taxes are more likely to violate these ten principles than taxes on other things, elected officials at every rung of the federalism ladder should consider replacing income taxes with other types of taxes.

Pilla identifies and describes these 10 key principles of tax policy:

  1. Simplicity
  2. Non-invasiveness
  3. Efficiency
  4. Stability
  5. Visibility
  6. Neutrality
  7. Economic Growth
  8. Broad-based
  9. Equality
  10. Constitutionality