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The “BENEFIT” PRINCIPLE Versus “ABILITY-TO-PAY” PRINCIPLE OF TAXATION
[By staff reporters]
OK; the 2018 mid-term elections are over. So, where do you stand on federal taxation? Let’s review the very basics.
The Lindahl Tax
A “Lindahl Tax” is a form of taxation conceived by Erik Lindahl in which individuals pay for public goods according to their marginal benefits. In other words, they pay according to the amount of satisfaction or utility they derive from the consumption of an additional unit of the public good.
It can be seen as an individual’s share of the collective tax burden of an economy. The optimal level of a public good is that quantity at which the willingness to pay for one more unit of the good, taken in totality for all the individuals is equal to the marginal cost of supplying that good. Lindahl tax is the optimal quantity times the willingness to pay for one more unit of that good at this quantity.
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Lindahl Benefit Principle. Those that benefit the most from a particular program should pay the most for that program (Lindahl Tax principle at work). Fuel Tax to finance road construction. Ability-to-Pay Principle. Those who have the greatest ability to pay should be required to pay the most. Horizontal equity. Vertical equity.
Ability-to-Pay Tax
An “Ability-to-Pay Tax” is exactly what it says with both horizontal and vertical components.
Ability-to-pay taxation is a progressive taxation principle that maintains that taxes should be levied according to a taxpayer’s ability to pay. Ability-to-pay taxation is a progressive taxation principle that maintains that taxes should be levied according to a taxpayer’s ability to pay.
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Conclusion
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Filed under: Taxation | Tagged: "Ability-to-Pay Tax, Lindahl Tax |
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