What is the key goal of efficiency in tax policy?

Minimizing the economic distortions caused by taxes is a fundamental goal of efficiency in tax policy. This principle is grounded in the idea that taxes should be designed in a way that interferes as little as possible with individual and business decisions. When a tax is imposed, it can alter the behavior of consumers and producers, leading them to make less efficient choices—what economists refer to as "deadweight loss." An efficient tax system aims to minimize these distortions, allowing markets to allocate resources optimally, thereby fostering economic growth and welfare.

In this context, it is significant to recognize how the other options do not align with the primary goal of efficiency. While simplicity in the tax code is beneficial for compliance and understanding, it does not directly address the efficiency of economic outcomes. Ensuring high levels of tax avoidance contradicts the notion of efficiency, as it indicates that individuals or businesses are manipulating the tax system to evade paying what they owe. Maximizing tax revenue, while important for government funding, does not necessarily yield an efficient tax system if the methods of revenue collection lead to significant economic distortions. Therefore, the focus on minimizing economic distortions encapsulates the essence of efficiency in tax policy.