Chapter 7, Problem 10P

To determine

The principle being followed when-

1. A tax on gasoline that finances maintenance of state roads.
2. An 8% tax on imported goods valued in excess of $800 per household brought in on passenger flights.
3. Airline-flight landing fees that pay for air traffic control.
4. A reduction in the amount of income tax paid based on the number of dependent children in the household.

Concept Introduction:

Ability to Pay Principle of Taxation:

According to this principle or approach, an individual is taxed as per her ability to pay. Higher the income, higher is the ability to pay and thus higher is the tax rate. The idea behind this principle is that in the society those who are able to pay should contribute to the treasury of the government at the cost of those who are not able to pay.

Benefits Principle of Taxation:

This principle says that an individual should pay taxes only on the basis of benefits she receive. One needs to pay toll tax only when he/she uses the road.