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 TI equality, fairness
Fairness
Of fundamental importance is that
any tax must be fair-that is, citizens should be taxed in proportion to
their abilities to pay (a concept that Smith defined somewhat ambiguously
as "in proportion to the benefit they derive from the government"). A tax
is considered fair if those who have the means to pay are assessed either
in proportion to their capacity to pay or, depending on the situation,
in proportion to what they receive from the government. Both "ability to
pay" and "benefits received," therefore, are respected criteria of equity.
Where general, widely dispersed services of government are concerned, the
two criteria are often indistinguishable, because people of greater wealth
usually have a greater stake in the well-being of the community. When government
services confer identifiable personal benefits on some individuals and
not on others, and when it is feasible to expect the users to bear a reasonable
part of the cost, financing the benefits, at least partly, by taxing the
people who benefit is considered fair. (Obviously, this method does not
apply to such services as public welfare payments.) Taxation in accordance
with appropriately applied standards of ability to pay or of benefits received
is said to meet the requirements of vertical equity (because such taxation
exacts different amounts from people in different situations). Just as
important is horizontal equity-the principle that people who are equally
able to pay and who benefit equally should be taxed equally.
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