Question

• The text discusses the “fairness of taxes” and states: “While everyone can agree that government needs to raise revenues through taxation, there is considerable debate about what each person’s “fair share” of the tax burden should be. To help societies decide which taxes are most fair, two principles of taxation are considered: 1) the benefits-received principle and 2) the ability-to-pay principle.” Basic Economic Principles.

• In a minimum of 250 words, please share your opinion on a hypothetical problem: How will your State tax citizens to fund: 1) a major, cross-State highway; and 2) public transportation in the State Capitol (bus, commuter train, ferry). Should only users be taxed (the benefits-received principle); or should all tax-payers fund these two things (ability-to-pay principle); or do you have another idea?
• (My state is Texas)

Answer 1

Benefit Received Principle

The benefit-received principle of taxation asserts that households and businesses should purchase the goods and services of government in basically the same manner in which other commodities are bought. It follows the same principle as the market - the individuals who receive the benefit of a good or service should pay the tax necessary to supply that good or service. For example, gasoline taxes are typically earmarked for the financing of highway construction and repairs. Those who benefit from good roads pay the cost of those roads.

Ability to Pay Principle

The ability-to-pay principle of taxation stands in sharp contrast to the benefits principle. Ability-to-pay principle rests on the idea that the tax burden should be geared directly to one's income and wealth. As the ability-to-pay principle has come to be applied in the United States, it contends that individuals and businesses with larger incomes should pay more taxes - both absolutely and relatively - than those with more modest incomes. It does not make any connection between use and payment but simply states that the individuals who are most able to bear the burden of the tax should pay the tax.

My opinions are as following-

1) A major cross state highway- To help societies, the benefits recieved principle should be use to collect tax in this case. As the cross state highway is generally used for transportation of goods, a higher(richer) classes of people are associated with transporting buisness, so they have to give tax for cross state highways as they are receiving direct benefits. The ability to pay priciple will not benefits societies here, because maximum middle class people do not use cross state highway.

2) Public transportation in state capitol- to help societies ability to pay priciple should be applied here. Generally public transportation is mostly used by middle class and poor people as they cant afford their own vehicles. So if the ability to pay priciple is applied here they will get some relief, as now they do not have to pay all the taxes. According to this principle , if the richer people help to pay taxes for public transportation which they do not use as they have thwir own vehicles, it will help the whole society. Those who benefit from good roads pay the cost of those roads. The ability-to-pay principle of taxation stands in sharp contrast to the benefits principle. It does not make any connection between use and payment but simply states that the individuals who are most able to bear the burden of the tax should pay the tax.

Thank you.