Question

In: Economics

Define ability to pay and benefits received in your own words providing examples in two additional...

Define ability to pay and benefits received in your own words providing examples in two additional paragraphs.

Solutions

Expert Solution

The ability to pay rule is basically the concept of progressive taxation, that is the taxes are levied on the individual based on their ability. The one with the higher income will be taxed more than the one with the lower income. So, it can be said that the income of the individual is directly proportional to the tax levied on that individual, tax increases with increase in income and decrease with the decrease in income of the individual’s income. Thus, this principle does not follow unified taxation system.

Benefit received rule says that a individual should pay tax according to the benefit which he or she receives from the government or it can be said that the benefit-received taxation is usually levied on the individual who receive benefit from the tax.

Example: In U.S income of $9,200 is taxable at 10% whereas a income of $415,000 is taxable at 39.5% , therefore this is ability to pay concept.

Whereas government collect tax on gasoline sales , the driver who pay tax on gasoline also gets benefit of well maintained roads, so this is benefit-received taxation.


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