Vertical Equity

Vertical Equity

The concept that persons with more income and/or wealth should pay higher tax rates than those with less. This should, in theory, lead to a more equal society. While vertical equity is controversial, most countries have adopted some form of a progressive income tax, which is based on the idea.
References in periodicals archive ?
Vertical equity is also weakened, if the fluctuation penalty is most acute for lower-income persons.
Improving vertical equity, then, serves to level the playing field
The Internal Revenue Code (IRC) embraces the concept of vertical equity through a progressive tax system; the tax rate rises as income rises.
In terms of vertical equity, if the poor had more opportunity of evading taxes than the rich then the egalitarian policy makers might be happy on evasion up to a certain level.
The 2013 law, when implemented, will make the tax system more progressive, by improving vertical equity between high income and low income taxpayers, as it limits the tax deduction to R350 000.
From an efficiency perspective, there is nothing fundamentally different between filers with and without tax liability and from a distributional perspective this reduces both horizontal and vertical equity.
The principle of vertical equity suggests that, when individuals are in different situations and have different abilities to pay, they should not be taxed at the same rate.
Emphasising that that principles of horizontal and vertical equity are important if a tax system is to be seen as fair, Mukherjee said that tax administration, which includes mechanisms to register taxpayers, collect revenue, enforce compliance and provide redress when required, also has a direct bearing on fairness of tax policy.
Vertical equity requires that the rate of tax applied to people of different income increases smoothly with their income and requires increasing marginal rates of tax.
Its outline will also include horizontal and vertical equity in healthcare finance and delivery; equity indicators e.
Equity is generally measured against two criteria: vertical equity requires that a person who is capable of paying more tax should pay more tax; while horizontal equity requires that a person who is in same circumstances as another person should pay the same amount of tax as that other person.
To further improve capital allocation and build on recent initiatives, personal income should be taxed on a neutral consumption basis, with vertical equity achieved by targeting tax credits on vulnerable groups.