Question

Consider the following two taxes: 1) a state imposes a 10 cent tax on every gallon of gasoline sold in the state to pay for road maintenance and improvements, and 2) a state imposes an additional 1% income tax on all state residents to pay for the construction of 50 new soccer fields throughout the state. Which of these two taxes is more consistent with the benefits-received principle? Why?

Answer 1

Ans) Benefit principle states that people should pay taxes based on the benefits they receive from government services.Similarly ,a person who gets great benefit from a public good should pay more for it than a person who gets little benefit .The gasoline tax,is sometimes justified using the benefits principal . In some states as mentioned above revenues from gasoline tax are used to build and maintain road.Because those who buy gasoline are the same people who use the roads,hence the gasoline tax might be viewed as a fair way to pay for this government services and In this case mentioned gasoline tax of 10 percent will reduce the demand of cars and reduce pollution and also the tax revenue spent on the construction of roads will definitely speed up the safety level of people and boost the economy as infrastructure is upgraded.Similarly the benefit principle states that the people who do not play football or don't like football should not pay the taxes hence according to it this is not right,Similarly the people use gasoline consistently as need to travel is huge and on the other hand soccer is seasonal sport hence less consistent.