What is the ability-to-pay principle of taxation?

The ability-to-pay philosophy of taxation maintains that taxes should be levied according to a taxpayer's ability to pay. Underlying this is the idea is that people, businesses, and corporations with higher incomes can and should pay more in taxes. The ability-to-pay principle is also known as progressive taxation.

What is the ability to pay principle?

The ability-to-pay principle holds that those who have a greater ability to pay taxes—measured by income and wealth—should pay more. One idea behind "ability to pay" is that those who have enjoyed success should be willing to give back a little more to the society that helped make that success possible.

How does the ability to pay principle affect tax policies?

While the concept of progressive taxation is the most well-known application of the ability to pay principle, there are other ways in which this principle influences tax policies. For example, property taxes often take into account the value of the property owned by individuals or businesses, reflecting their ability to pay based on their assets.