Government finance systems and structures

Tax

The Benefit Principle of Taxation

The benefit principle of taxation asserts that government goods and services -- the things funded with tax monies collected -- should be paid for by those that consume these goods and services, to the degree that they consume them (421-2). In other words, the amount of tax someone pays should, according to those that hold a belief in this principle, be commensurate with the amount of benefits that person receives from the government goods and services consumed. There are many practical problems with this principle, not the least of which is measuring the amount of benefits an individual in society might consume. In addition, such a tax would likely be regressive and thus unpopular and overly onerous. These two problems are actually closely interconnected.

At first glance, and perhaps realistically, those that are lower on the socioeconomic ladder in a society tend to consume more government goods and services. Medicare, in addition to covering the elderly, is made available to lower-income individuals, and other direct assistance programs also go to these individuals. Combined with other goods and services such as road maintenance and other infrastructure, national security, etc., which are all consumed essentially evenly (again, in one perspective), this would mean that those at the lowest end of the economic spectrum consume the most and should pay the most -- a regressive tax that places the largest burden on those with the least ability to pay (417). In another perspective, however, those with high levels of income, wealth, and consumption benefit a much greater degree from the general services the government provides. The owner of a company benefits from the roads each time an employee drives into work, and from airwaves every time an Internet sale is made, and so on. Calculated thus, the benefit principle would lead to a progressive tax (416).