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Taxation Equity
Taxation equity is the principle that taxes should be fair. However, there are several criteria for determining what is fair. The benefits principle states that people should pay taxes based on the benefits that they receive from government services. For instance, excise taxes on gasoline are used to build roads and bridges. However, taxes on income and investments are based on the ability to pay.
The ability-to-pay principle can be classified as vertical equity and horizontal equity. Vertical equity is the principle that people with higher incomes should pay more taxes, such as the provision for the increasing marginal tax rates on higher income. Horizontal equity is the principle that people with higher necessary expenses should pay less tax than someone else with equal income but without the expenses. A common application of this principle is the provision for the numerous deductions and tax credits available for people who have children, allowing them to pay less tax for a given level of income.
Another general principle that would make taxation more equitable is to consider the marginal utility of money. As with everything else, the marginal utility of money declines with ncreasing amounts. Each successive dollar of income holds less value than the previous dollar for the holder. This is because when people have less money, they need to spend it on essential goods and services, such as food, clothing, and health insurance. On the other hand, wealthy people have much more money than what they need for essential goods and services, so they can invest it to make even more money or pass it to their descendants. Extremely wealthy people have so much money that they pay record prices for art, such as the recent payment of $106.5 million for a painting that took Picasso only 1 day to paint. So when considering the marginal utility of money, a poor person paying 25% of his income for taxes is paying a much more valuable portion of his income than a wealthy person paying the same percentage of her income.
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| 1. What is taxation equity and why is it important? |  |
Ans. Taxation equity refers to the principle of fairness in distributing the tax burden among individuals and businesses. It ensures that everyone pays their fair share of taxes based on their ability to pay. Taxation equity is important as it promotes social justice, reduces income inequality, and helps fund public services and infrastructure.
| 2. How is public revenue generated? | |
Ans. Public revenue is generated through various sources such as taxes, fees, fines, and government-owned enterprises. Taxes, including income tax, sales tax, property tax, and corporate tax, are the primary source of public revenue. Fees are charges for specific government services, fines are penalties for violating laws, and government-owned enterprises generate revenue through their operations.
| 3. What is public finance and why is it significant? | |
Ans. Public finance refers to the study of how governments allocate resources, raise revenue, and manage their finances. It involves analyzing government budgets, taxation policies, public expenditures, and debt management. Public finance is significant as it helps governments make informed decisions on funding public services, maintaining economic stability, and achieving socio-economic objectives.
| 4. How does taxation affect equity in society? | |
Ans. Taxation can affect equity in society by either reducing or exacerbating income inequality. Progressive taxation, where higher-income individuals pay a higher percentage of their income in taxes, can help reduce inequality. On the other hand, regressive taxation, where lower-income individuals pay a higher percentage of their income in taxes, can worsen inequality. The design of tax systems and the allocation of tax burdens play a crucial role in promoting equity.
| 5. How can public revenue be effectively utilized for the benefit of society? | |
Ans. Public revenue can be effectively utilized for the benefit of society by investing in public services, infrastructure, and social welfare programs. This includes funding education, healthcare, transportation, public safety, and poverty alleviation initiatives. Additionally, governments can allocate revenue towards economic development, job creation, and environmental protection. Effective utilization of public revenue requires careful planning, transparency, and accountability in government spending.
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Dec 23, 2024 Last updated |
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