I n t h I s c h a p t e r y o u w I l L

ability-to-pay
principle,
which states that taxes should be levied on a person according to how
well that person can shoulder the burden. This principle is sometimes justified by
the claim that all citizens should make an “equal sacrifice” to support the govern-
ment. The magnitude of a person’s sacrifice, however, depends not only on the
size of his tax payment but also on his income and other circumstances. A $1,000
tax paid by a poor person may require a larger sacrifice than a $10,000 tax paid by
a rich one.
b e n e f i t s p r i n c i p l e
the idea that people should pay taxes
based on the benefits they receive
from government services
a b i l i t y - t o - p a y p r i n c i p l e
the idea that taxes should be levied
on a person according to how well
that person can shoulder the burden

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PA R T F O U R
T H E E C O N O M I C S O F T H E P U B L I C S E C T O R
C A S E S T U D Y
HOW THE TAX BURDEN IS DISTRIBUTED
Much debate over tax policy concerns whether the wealthy pay their fair share.
There is no objective way to make this judgment. In evaluating the issue for
yourself, however, it is useful to know how much families of different incomes
pay under the current tax system.
Table 12-8 shows how all federal taxes are distributed among income
classes. To construct this table, families are ranked according to their income
and placed into five groups of equal size, called 
quintiles.
The second column of
the table shows the average income of each group. The poorest one-fifth of fam-
ilies had average income of $9,880; the richest one-fifth had average income of
$174,000.
The next column of the table shows total taxes as a percent of income. As
you can see, the U.S. federal tax system is progressive. The poorest families paid
The ability-to-pay principle leads to two corollary notions of equity: vertical
equity and horizontal equity.