Question

What do you believe is more important in taxing the public to provide funds for stadiums - horizontal equity or vertical equity? why?

Answer 1

Answer: It should be under vertical equity.

Horizontal equity: If the tax bill of each individual is same as their incomes are same. Suppose A, B, and C are having the same tax bill of $6,000 since each of them has $60,000 income; in this case {(6,000 / 60,000) × 100 =} 10% tax rate is applied to all of them; but it has certain difficulty because the amount of deduction may not keep such equal tax bill for them – suppose B is getting $10,000 mortgage interest deduction; it reduces his taxable income to ($60,000 - $10,000 =) $50,000 and tax bill to ($50,000 × 10% =) $5,000; therefore, although they are having the same tax rate their tax bills are not same – A and C are paying tax $6,000 but B is paying only $5,000. Therefore, this system is not effective for acquiring huge sum of money for stadiums since who is holding what deduction is very hard to anticipate. The system may fail to accumulate desire sum of money what is calculated in advance.

Vertical equity: If the tax rate is progressive (higher income provides higher tax), regressive (higher income provides lower tax), or proportional (same tax rate for all income) then this is vertical equity of taxing. In this case the tax rate or tax bill is not same for a particular income group (as discussed above) but varying as their taxable income varies. This is more effective and fruitful, since taxable income is considered here – which must vary from person to person and their taxes. Acquiring a large sum of money would be easy under this system.