Equity: Two Kinds of Tax Fairness Tax equity can be looked at in two important ways: vertical equity and horizontal equity. Vertical equity addresses how a tax affects different families from the bottom of the income spectrum to the top—from poor to rich.
These are: (1) the belief that taxes should be based on the individual's ability to pay, known as the ability-to-pay principle, and (2) the benefit principle, the idea that there should be some equivalence between what the individual pays and the benefits he subsequently receives from governmental activities.
In The Wealth of Nations (1776), Adam Smith argued that taxation should follow the four principles of fairness, certainty, convenience and efficiency. Fairness, in that taxation should be compatible with taxpayers' conditions, including their ability to pay in line with personal and family needs.
Tax fairness is a concept which stipulates that a government's tax system should be equitable to all citizens. ... The solutions are varied, but most fall under three broad systems of taxation. They include regressive taxation, progressive taxation, and blended taxation.
Thus, according to the aforementioned , ability to pay principle of taxation sounds more equitable and easier to be applied and succeed.
There are three main types of taxes, each with very different properties: progressive, proportional, and regressive.
Taxation principles are the guidelines that a governing entity should use when devising a system of taxation. These principles include the following: Broad application. The system of taxation should be spread across a broadest possible population, so that no one person or entity is taxed excessively.
The principles of a sound tax system are fiscal adequacy, administrative feasibility, and theoretical justice. Fiscal adequacy means the sources of revenue must be sufficient to meet government expenditures and other public needs.
The major types of taxes are income taxes, sales taxes, property taxes, and excise taxes.
The scientific approach for the determination of the exact tax rate, which implies setting the deduction rate at a level that would allow the subject to have an income necessary for normal development. The magnitude of the tax burden should allow the normal functioning of the taxpayer after paying the tax amount.
Supporters of the progressive system claim that higher salaries enable affluent people to pay higher taxes and that this is the fairest system because it lessens the tax burden of the poor. ... Flat tax has one tax rate.
Today, 64% of Republicans and Republican-leaning independents say the present tax system is very or moderately fair; just half as many Democrats and Democratic leaners (32%) view the tax system as fair. The share of Republicans who say the tax system is fair has increased 21 percentage points since 2017.
progressive tax—A tax that takes a larger percentage of income from high-income groups than from low-income groups. proportional tax—A tax that takes the same percentage of income from all income groups. regressive tax—A tax that takes a larger percentage of income from low-income groups than from high-income groups.
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