Definition and Examples By JULIA KAGAN Full Bio Julia Kagan is a financial/consumer journalist and former senior editor, personal finance, of Investopedia.
Learn about our editorial policies Updated December 15, 2020 Reviewed by JANET BERRY-JOHNSON
What Is Ability-To-Pay Taxation? The ability-to-pay philosophy of taxation maintains that taxes should be levied according to a taxpayer's ability to pay. The idea is that people, businesses, and corporations with higher incomes can and should pay more in taxes.
KEY TAKEAWAYS
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.
Proponents of "ability to pay" argue that a single dollar ultimately means less to a rich person than a wage earner, so the rich should pay more to equalize their sacrifice."
This last statement should be very easy to understand by the people posting here Zero Hedge stuff ad nausea because it is based upon the theory of marginal utility, a theory fathered by the Austrian School.
Furthermore, the marginal propensity to spend of the rich is much lower than that of the poor.
