The Importance Of Equity In Public Finance

730 Words 3 Pages
Recent election campaigns promoted various types of the tax credits toward specific groups of taxpayers like tax credits for service club members proposed by Stephen Harper 's Conservative Party and tax credits targeted towards school teachers of up to 15% of one thousand dollar annual expenditure out of their own pocket for buying classroom supplies proposed by Justin Trudeau 's Liberal Party. Harper believes that "citizens, not bureaucrats, know best how to invest in their own communities". He thinks the service club members of local communities know what is better for the society than the government does itself and as a result, those members can spend this money they get from tax credit more effectively than the government will on other …show more content…
In public finance, tax equity is divided into two categories, horizontal equity and vertical equity. On one hand, horizontal equity is achieve when the people with similar ability to pay pay the same level of income tax. When people with the similar level of income pay different amount of tax, there is an absence of horizontal equity. On the other hand, vertical equity means people with higher ability to pay should pay a greater amount of income tax compared to those with lower income to reflect the higher earnings they have. In the case of tax credits for teachers and service club members, it disobeys horizontal equity because while teachers and service club members can make around the same amount of salary as many other careers in the industry, only those two specific groups get tax credits to compensate their income taxes paid to the government. Other careers in the same income segment do not receive equivalent reduction to income tax, and hence, it is not fair for the people working as teachers and service club members to receive additional tax credits and pay a lower income tax than those at the similar income level. Therefore, this tax credit is not horizontal equitable. When we examine if the credit is vertically equitable, it can be vertically inequitable when the amount of tax credits is great enough that it reduces the amount of the income tax paid by the people taking tax credit to a lower level than those with lower income and without tax credits. Thus the application of tax credits can cause both vertical and horizontal inequities to happen, so tax credit in general is not equitable. If the tax credit is not equitable, is it efficient? The answer is no, tax credits are not efficient either. As a recent article found on Toronto Star with professor Lindsay Tedds from University of Victoria commenting on the tax credits. She said, "They gave up something to get it, it could have been more

Related Documents