Question

Question 7
-Distinguish between benefits and ability to pay approaches of taxation.​

Answer 1

Answer:

The greatest divide, however, between benefit-based taxation and modern optimal income tax theory is normative. The Mirrleesian approach has roots in John Stuart Mill's (1871) ability-based principle for optimal taxation, where the heart of the tax problem is distributive.

Explanation:

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Answer 2

Answer:

Benefit Received Principle

The benefit-received principle of taxation asserts that households and businesses should purchase the goods and services of government in basically the same manner in which other commodities are bought. It follows the same principle as the market - the individuals who receive the benefit of a good or service should pay the tax necessary to supply that good or service. For example, gasoline taxes are typically earmarked for the financing of highway construction and repairs. Those who benefit from good roads pay the cost of those roads.

Ability to Pay Principle

The ability-to-pay principle of taxation stands in sharp contrast to the benefits principle. Ability-to-pay principle rests on the idea that the tax burden should be geared directly to one's income and wealth. As the ability-to-pay principle has come to be applied in the United States, it contends that individuals and businesses with larger incomes should pay more taxes - both absolutely and relatively - than those with more modest incomes. It does not make any connection between use and payment but simply states that the individuals who are most able to bear the burden of the tax should pay the tax.