What it is:
Ability-to-pay taxation is a tax that's assessed based on the taxpayer's the tax.
How it works (Example):
John Doe earns $40,000 a year. Jane Doe earns $100,000 a year. The federal government wants more to pay off its debts and considers raising tax rates to get the . Because the government feels that higher tax rates would be more of a hardship on John Doe than Jane Doe, it codifies the new tax rule such that only people who make more than $75,000 a year have to pay 100% of the tax, and people who make less than $75,000 a year pay only a quarter of the tax. The difference is based on the two ' .
Why it Matters:
Ability-to-pay taxation is essentially the philosophy behind the United States' progressive tax system. Proponents argue that the approach is fairer to people who don't have the means to pay ; critics argue that the approach punishes people for financial success.