What principle does tax equity represent?

Tax equity fundamentally represents the principle that taxes should treat taxpayers fairly. This principle is based on the idea that individuals ought to contribute to government revenue in a manner that reflects their ability to pay. It encompasses two primary components: horizontal equity, which suggests that individuals with similar financial circumstances should pay similar amounts in taxes, and vertical equity, which argues that those with greater financial resources should contribute a higher proportion of their income.

This concept is vital because it strengthens public trust in the tax system and ensures a sense of justice within the society. When taxpayers feel that the tax system is fair and equitable, they are more likely to comply with tax laws and fulfill their obligations.

In contrast, elements such as maximizing government revenue, encouraging economic growth, or maintaining universally low tax rates may influence tax policy but do not inherently embody the principles of fairness and equity that are central to tax equity. The focus on fairness is what distinguishes tax equity from mere efficiency or revenue generation in public finance discussions.