Ben Franklin said, “ In this world nothing is certain but death and taxes”. Taxes are collected from citizens from the government in order for the government to provide everyone with various goods and services. Let’s say, “ The state has decided to increase funding for public education. They are considering four alternatives to finance these expenditures. All four taxes would raise the same amount of revenue.” The four taxes proposed are as follows: a sales tax on food, a tax on families with school-age children, a sales tax on jewelry, and a property tax on vacation homes. Each of these four taxes will be analyzed based on the benefits principle and the principle of horizontal equity and then classified each tax as progressive, proportional, or regressive. We will use this information to determine which tax is best suited to finance public ...view middle of the document...
If however, the purchasers of jewelry do send their children to public school, this tax would be supported by the benefits principle for said group of people.
Vacation homes are again another luxury enjoyed by the middle and upper class. If a property tax on these homes is instilled in order to provide funding for public education, it cannot be justified by the benefits principle. Those who own vacation homes are more likely to have higher disposable income and send their children to private school, which would mean that they are not benefitting from the public service of public education. As mentioned before with the example of jewelry consumers, if the owner’s of vacation homes do send their children to public school, then the tax would be justified according to the benefits principle.
To evaluate if a tax code is horizontally equitable, one must determine which differences are relevant for a family’s ability to pay and which differences are not. In the case of a sales tax on jewelry, if a family is able to pay for jewelry it is most likely able to pay for the sales tax on said jewelry. The same is true for a family with a vacation home. If a family can afford to have two homes, it can probably afford to pay the property taxes on the price of both of their homes. According to the horizontal equity theory, in both the case of a sales tax on jewelry and a property tax on vacation homes, the tax codes seem equitable.
I think that both sales taxes on jewelry and property taxes on vacation homes would be considered as progressive taxes. This is because since high-income taxpayers are the ones buying the jewelry and owning vacation homes. Because low income tax payers do not incur any of the costs of buying jewelry or owning vacation homes, none of their income will be taxed. On the other hand, the upper class will pay a larger fraction of their income on taxes, due to the taxes they pay on jewelry and vacation homes.