What Is Ability-To-Pay Taxation?

The ability-to-pay philosophy of taxation maintains that taxes should be levied according to an individual's ability to pay. The idea argues people, businesses, and corporations with 澳洲幸运5官方开奖结果体彩网:higher incomes can and should pay more taxes. 

Progressive Taxation

A 澳洲幸运5官方开奖结果体彩网:progressive tax has a tax rate that increase♎s or progresses as taxable income increases. It imposes a lower tax rate on low-income earners and a higher rate on those with higher incomes. Ability-to-pay taxation argue🙈s that those who earn higher incomes should pay a greater percentage of those incomes in taxes than those who earn less.

In 2024, individuals in the United States with taxable income less than $11,600 ($11,925 in tax year 2025) faced a 10% income tax rate, while those with taxable income of more than $609,350 ($626,350 in tax year 2025) faced a rate of 37%, the nation's top individual rate. Earnings between those amounts face tax rates as set by income brackets.

The ideals of ability-to-pay taxation promote the notion that people with more money who pay more taxes are not heavily burdened. To a person earning $1 million a year, $10,000 will make very little difference in their l♏ife, while it will make a b🌼ig difference to a person earning only $60,000 a year.

History

A progressive income tax was endorsed by Adam Smith in 1776. Smith wrote: “The subjects of every state ought to contribute toward the support of the government, as near as possible, in proportion to their respective abilities; that is in proportion to the revenue which they respectively enjoy under the protection of the state."

To support efforts in World War I, the U.S. passed The Revenue Act of 1918 which codified all tax laws and imposed a progressive income-tax rate structure of up to 77 percent. A progressive tax structure is evident in the tax brackets for the tax year 2025:

Arguments and Criticism

Advocates of ability-to-pay taxation argue that those who have benefitted most from the nation’s way of life in the form of higher incomes and greater wealth can afford and should be obligated to give back more. Tax revenues build 澳洲幸运5官方开奖结果体彩网:infrastructure, a strong military, and public schools.

Critics of 澳洲幸运5官方开奖结果体彩网:progressive taxation argue that it is . They say it penalizes hard work and success and reduces the incentive to make more money. While the U.S. maintains a progressive tax system, tax rates for the wealthy have plummeted over several decades. When President Ronald Reagan took office in 1981, the highest income 澳洲🍸幸运5官方开奖结果体彩网:tax bracket for individuals was 70%. In 2024, the top rate is 37%.

The Bottom Line

Ability-to-pay refers to a principle holding that taxes should be levied according to one's ability to pay them. Higher earners and wealthier individuals pay higher tax rates than those with lower or middle income.