A tax system must raise revenue sufficient to finance the amount of government citizens demand. To do this properly requires that the tax system be visible to the taxpayer and thereby serve the function of pricing out government services. It is desirable to have as many citizens be taxpayers as possible. The ideal tax system would seek to raise revenues in a manner that did not change the set of relative prices in our economy. In practice this is impossible to achieve.
All taxes change the price of economic activities.
The challenge is to maintain as far as possible, the same relative prices post-tax that existed before taxes were levied. The most important violation of the neutrality criterion in our current income tax system is the double taxation of the savings versus consumption uses of income. I will return to this point later in my testimony. A good tax system is one that should be simple to administer and uniformly understood by all taxpayers. The real complexity in the tax code falls most heavily on business and on upper-income Americans.