Question

How does the ability-to-pay principle of taxation differ from the benefit principle? What problems are encountered in implementing both of these tax philosophies? Does a Christian worldview support one philosophy over the other? Support your response with a discussion of specific scripture.

Answer 1

The ability-to-pay principle of taxation is based on the idea that tax burden should be geared directly to an individual’s and entity’s income and wealth. Thus, the larger the income the higher will be the tax payments (both on an absolute basis as well as on a relative basis). The benefit principle totally different from the ability-to-pay principle and this principle assert that individuals and entities who receive the benefit of a good or service should pay tax that is necessary to supply those goods and services. It does not consider income base like the ability-to-pay principle.

The problem with the implementation of ability-to-pay principle of taxation is that people would look at ways to reduce their tax burden by hiding their income or using loopholes to reduce their taxable income. The problem with the implementation of benefit principle is that people will start indulging in free riding. This, in the long run, will lead to lower real demands for public goods and thus lower tax payments for individual and entities.

The Christian worldview supports the ability-to-pay principle. As per Matthew 22:18-21 money belongs to God, but if taxes are required by government, then citizens must pay taxes as per their ability.