Question

In: Economics

Can you think of both equity and efficiency arguments supporting the special treatment of capital gains?

Can you think of both equity and efficiency arguments supporting the special treatment of capital gains?

Solutions

Expert Solution

Equity and Efficiency are included under the tax policy to simplify the policy by covering it to reduce the impact of tax on the people.

Tax efficiency minimizes the cost of complying with the tax code by reducing its administrative burden and by minimizing any distortions in the economy caused by the tax. Reducing the administrative burden not only benefits the taxpayers but also the economy.

Taxation equity is the principle that taxes should be fair.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.

Thus we can say that capital gains can be increased through equity and efficiency and also through these, tax compliance can also be increased.


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