Question

Jurisdiction M imposes an individual income tax based on the following schedule.

Rate Income bracket
5% $-0- to $50,000
+ 8% $50,001 to $200,000
+ 12% $200,001 and aboveWhich of the following statements is true?
A) The schedule provides no information as to whether Jurisdiction M's tax is horizontally equitable.
B) Jurisdiction M's tax is vertically equitable.
C) Jurisdiction M's tax is vertically equitable only for individuals with $50,000 or less taxable income.
D) Both A. and B. are true.

Answer 1

D) Both A. and B. are true.

• A) The schedule provides no information as to whether Jurisdiction M's tax is horizontally equitable.
• B) Jurisdiction M's tax is vertically equitable.

Step-by-step explanation:

When we are talking about horizontal equity of a tax, we are talking about how the tax base is measured and the ability that taxpayers have to pay the tax. There is nothing here about tax base or taxpayers' ability to pay.

On the other hand, vertical equity deals with the tax rate structure. In this case, the tax rate is progressive, meaning that it increases as the taxpayers' income increases. Progressive taxes are vertically equitable.