The ability to pay principle of taxation suggests that if a tax system is to be vertically equitable it should

Question

a. proportional.
b. lump-sum.
c. regressive.
d. efficient.
e. progressive

Cant it be A, C, OR E

Answer 1

E. Only.

Proportional only means that it is applied at a % rate as opposed to some other measure such as weight, horsepower, etc. Ad valorem property taxes are proportional but do not take in to account the taxpayers ability to pay. The theory is that only wealthier people can afford property and therefore the taxes but this does not account for elderly taxpayers on fixed incomes who no longer have the ability to pay rising taxes.

Regressive taxes, such as sales taxes, do not take into account the ability of the taxpayer to pay. On the contrary, they have a proportionally higher burden on the poor than the wealthy as they consume a greater proportion of their available income

B has nothing to do with ability to pay, only the timing of the payment.

D is nice as it avoids waste but has nothing to do with ability to pay.

A well-designed progressive tax such as an income tax considers the ability of the taxpayer to pay. The poor typically pay no tax at all and under some systems may receive redistribution payments such as the Earned Income Tax Credit in the US. A progressive tax has a variable rate feature where the tax rate increases as the taxpayer's income and therefore their ability to pay increases.

Answer 2

The ability to pay principle of taxation suggests that if a tax system is to be vertically equitable it should be progressive.