Of course, there’s no one-size-fits-all ideal tax system but here are a few tips. Tax systems should:
Provide a relatively stable revenue stream.
Generate enough revenue to meet policy goals without incurring excessive debt.
Be sufficiently predictable for taxpayers to make long-term spending and investment decisions.
Derive revenue from a diversified portfolio of taxes, such as income, consumption, and excise taxes.
Not rely on a narrow tax base, such as a small number of households or companies.
Be moderately progressive but not overly dependent on taxing the super-rich, which can produce highly variable returns over time.
Be sufficiently broad-based to foster widespread civic engagement with issues of government accountability and efficiency (on the principle of "if I pay in, they better deliver and not waste my money”).
Avoid relying too much on capital gains taxes, which are extremely volatile.
Root out tax evaders, especially in the informal sector, as widespread tax evasion discourages overall tax compliance.
Be simple enough for taxpayers to understand.
So what would be “enough revenue to meet policy goals without incurring excessive debt”? It depends on your policy goals, current debt load, and how much additional debt your country can manage. As it is, national tax revenue as a percentage of GDP varies quite a bit. Take a look:
OECD = The Organisation of Economic Cooperation and Development, a club of mostly rich countries that share data, compare policy experiences, seek answers to common problems, and identify good practice.
Why are US revenues proportionally so much lower than the OECD average? Probably because the other countries spend more than the US on social benefits. Who’s paying all those taxes in these countries? This table provides a clue:
The US gets proportionally less revenue from consumption taxes than other countries in the above table. Note that consumption taxes fall mostly on the middle-class and below, so are considered regressive taxes. The top income tax rate is also lower in the US than most of the other countries and applies to a rather narrow segment of society: the rich. In contrast, Denmark and Sweden may have super-high income taxes but they apply to the middle-class as well as the rich. Bottom line: between regressive consumption taxes and a low threshold for top income taxes, most of the countries in the above chart have a less progressive tax system than the US. Rather, their tax systems are relatively broad-based and just moderately progressive, which is a good thing.
References:
Citizen-State Relations: Improving Governance through Tax Reform, OECD 2010.
Staying Stable by Katherine Barrett & Richard Greene Governing.com December 31, 2007.
The open secret about California taxes by Judy Lin/ CalMatters May 8, 2018.