What principle suggests that taxpayers with a higher ability to pay taxes should pay more?

The principle that suggests that taxpayers with a higher ability to pay taxes should pay more is known as vertical equity. Vertical equity is based on the idea that those who have greater financial means should contribute a larger portion of their income to fund public services and government functions. This approach recognizes the differences in wealth and income among individuals and aligns the tax burden with the taxpayer's capacity to pay.

In practice, vertical equity often leads to progressive taxation, where tax rates increase as income increases, ensuring that higher earners pay a larger percentage of their income in taxes compared to those with lower incomes. This principle is essential for promoting a fair and just tax system, as it seeks to reduce inequality and provide for societal needs according to the financial capability of individuals.

Horizontal equity, on the other hand, refers to the idea that individuals in similar circumstances should pay similar amounts in taxes, while proportional tax refers to a tax system where everyone pays the same percentage regardless of their income level. A regressive tax, conversely, imposes a smaller burden on higher-income individuals compared to those with lower incomes, which does not align with the principle of vertical equity.