Vertical Equity

Consider the three tax systems in Table 7. In each case, taxpayers with higher incomes pay more. Yet. the systems differ in how quickly taxes rise with income. The first system is called proportional because all taxpayers pay the same fraction of income. The second system is called regressive because high-income taxpayers pay a smaller fraction of their income, even though they pay a larger amount. The third system is. called progressive because high-income taxpayers pay a larger fraction of their income. Which of these three tax systems is most fair? There is no obvious answer, and economic.

TABLE 7 Three Tax Systems