Distribution of tax burdens

Tax policy may be influenced by a number of ideologies, political forces, and objectives. Here is a summary of some of the key ideas that might influence taxes decisions.

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Horizontal equity

The horizontal equity concept presupposes that individuals in the same or comparable situations (for tax purposes) will be subject to the same tax responsibility. In actuality, both consciously and unconsciously, this equality principle is frequently ignored. Politics, as opposed to good economic policy, is typically what drives intentional infractions. Whether or whether variations from "equal treatment of equals" are justifiable has frequently been the focus of the tax reform debate.

The ability-to-pay principle

The ability-to-pay principle mandates that the entire tax burden be allocated among people in accordance with their ability to pay it, accounting for all pertinent individual factors. Personal levies are the most appropriate taxes in this regard (income, net worth, consumption, and inheritance taxes). Income is the best measure of the ability to pay, according to historical consensus. The English philosophers John Locke and Thomas Hobbes, as well as a number of modern tax experts, were significant opponents of this viewpoint in the 17th century.

However, there is no way to prove that any given level of progressivity is the appropriate one. The ability-to-pay principle is also sometimes read as necessitating that direct personal taxes have a progressive rate structure. Some tax theorists think that a fair redistribution can only be accomplished when such taxes are complemented by direct income transfers or negative income taxes since a sizeable portion of the population does not pay some direct taxes, such as income or inheritance taxes (or refundable credits).

The benefit principle

According to the benefit principle, taxes play a similar function to how prices are determined in private transactions, i.e., they help determine what actions the government would take and who will pay for them. The public sector's resource distribution would directly reflect consumer preferences if this theory could be put into practice.

The benefit principle is very difficult to put into practice for the majority of public services since people often don't want to pay for a publicly supplied service, like a police department, unless they can be kept out of the advantages of the service. Levies on motor fuels and road-user fees are the most effective ways to use the benefit principle for funding roads and highways (tolls). Payroll taxes, which are used to pay for social security, may also show a connection between benefits and "contributions," but this connection is typically shaky because contributions do not flow into accounts kept for individual contributors.

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