Lane Community College
ECON200 Online Course

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The material on this page is excerpted from the book Taxt Shift: How to Help the Economy,
Save the Environment,  and Get the Tax Man Off Our Backs, published by Northwest Environmental Watch.

How To Tell A Good Tax From A  Bad Tax

We evaluate taxes on four criteris:

Economy: Does the tax encourage or discourage enterprise, growth in productivity, and job creation? Specifically, does the tax cause what economists call a "deadweight loss": a loss in economic output caused by distorted incentives created by te tax? Taxes on wages, for example, discourage people from working. Taxes on investment discourage people from investing. Both reduce economic output.

Equity: Does the tax fall on people in proportion to their ability to pay? Progressive taxation attempts to equalize sacrifice instead of simple percentages by taking a lrager proportion of income from higher-income households than from poorer ones. Regressive taxes, by contrast, take a larger share of income from middle-class and poor households than from affluent ones.. Because the cost of some taxes is passed on from the initial taxpayer to others, assessing fairness requires paying attention to who ultimately feels the tax bite.

Environment: Does the tax encourage or discourage resource conservation and pollution prevention? Does the tax correct the failure of the market to reflect environmental costs, such as pollution's effects on health?

Ease of Administration: Is the tax easy to administer and enforce? Is it easy for taxpayers to comply with the tax? Is it easy to evade? Is it costly to collect?