In: Economics
3. The Haig-Simons criteria is often defended on the basis that it is fair, and more efficient since it makes income taxes neutral to all sources of income. Is this generally true? Secondly, is it always more efficient to tax all sources of income at the same rate? Explain
Answer- Haig simons stated that the individuals are not equally efficient and the tax benefits like health insurance which are not included in computing the taxable income and thus should be included while calculating the income tax liability of an individual. According to Haig Simons the Invesment includes consumption and change in net wealth. Haig argued that the ability to pay tax varies from individual to individual and thus an increase in income mist come in hand with some increase in the tax liability. Although it makes the tax liability neutral for every individual but it is generally not true. In my opinion if every individual is taxed at the same rate then it would lead to every person leaving with the same percentage of income with every individual and it also poses a problem because the people with low level of income will be charged with such rate of tax which is imposed on the income of high level income earning persons. In my opinion the tax tate should be low for people for low level of income and they should be exempt from taxes if income is low below a certain level. Also the persons with high level of income should he taxed at a rate which increases with the increase in the level of income this would promote equality. Also the Haig’s method doesn’t satisfy the pareto function.