The biggest issue facing the Legislature this session will be dealing with the governor’s proposals regarding tax reform. Reducing the income tax with an eye to eliminating it altogether, expanding the sales tax base, eliminating municipal revenue sharing and allowing the property of large nonprofit organizations to be subject to municipal property taxation are all major – even revolutionary – changes that deserve thoughtful consideration.

Unfortunately, the thinking so far on these changes seems focused almost entirely on winners and losers. What households will and won’t gain from elimination of the income tax? What towns don’t have big nonprofits to tax? What businesses will become subject to the sales tax?

This hurried number crunching is unfortunate on two counts. First, it defines the issue from the beginning as “us versus them” and sets the stage for an adversarial process of dueling experts with various tales of woes and catastrophic loss. Second, this invitation to even more partisan and institutional bickering virtually eliminates the opportunity to consider the more important underlying questions: What is the purpose of our government, and what do we as a community choose to do for our selves? And what are the best ways to raise money to do that?

To that end, I offer the four following principles of taxation: efficiency, stability, neutrality and equity.

• Efficiency: A tax should be easy and inexpensive for the government to administer and for the citizen to pay. The lower the cost for preparing, filing, collecting and administering per dollar of revenue raised, the better.

• Stability: A tax should allow government to make reasonable plans for spending and taxpayers to make reasonable plans for paying. The less the volatility of the tax revenue from year to year, the better.

• Neutrality: A tax should not be a significant factor in determining a taxpayer’s behavior. The less a tax alters a taxpayers’ decision about the his/her/its best course of action, the better.

• Equity: A tax should be fair across income levels, generally meaning that the amount of tax paid increases as income increases. It should be fair across geography, generally meaning that a tax imposed by the taxing unit of some geography (municipality, county, state) applies equally to all taxpayers within that geography; location alone is not a proper basis for differing taxes for otherwise equal taxpayers. It should be fair across tax categories – income, sales and property. It should be fair across generations, meaning that a tax imposed on one generation to pay for obligations due to another (say, property taxes to pay for public education and payroll taxes to pay for retirement and elderly health programs) should be equal.

How about we step back from the all-too-easy “horse race” analysis and hold up the governor’s plan to some standards of value?

Charles Lawton is chief economist for Planning Decisions Inc. He can be contacted at:

[email protected]