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The benefit principle is a principle of taxation that proposes the taxes that should be based on the benefits received by people using the goods that are financed with the tax.

Overview of Benefits Principle

The benefit principle is generally known as a traditional reasoning for the obligation of taxes. It states that the taxpayer should contribute to the government in proportion to the benefits obtained from the government institutions and programs. The benefit principle applies the logic that government spending should be compensated by the people who receive them. Like highway tolls, tuition fees, or charges for administrative concessions or licenses. This principle is often found to be interesting for its superficial equality in that those who benefit from a service should be the ones who pay for it.

The US tax system does not follow this principle. The US tax system is a progressive or ability to pay principle. The ability to pay principle states that tax burden should not be distributed without considering an income level group, which is a key factor. This principle gives more importance to fairness and equality. Those who are reaping more benefits have to pay more taxes. The individuals who are less benefitted are likely to pay less tax. Also, with all the facilities and help that are rendered to the underprivileged, they may further enjoy the benefits from the government by claiming for tax reimbursement under special category.

The main drawback of the benefit principle concept is that it is not practically possible to levy on universal products. Government cannot levy taxes as per the benefit obtained in the cases of public education that has been provided, the transport, Gasoline excise duties, etc.

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What you’ll learn:

Benefits Principle DefinitionOverview of Benefits PrinciplePurpose of Tax:Difference between the Principles of Taxation:

Purpose of Tax:

Governments enforce charges in the form of taxes on their residents and dealings as a means of expanding revenue, which is then deployed to meet their fiscal demands. Taxes are vital source of revenue generators for the government.

  • Taxes support and elevate the standard of living in a country.
  • The growth of health, education, governance, infrastructure, transport, and the housing sector development, etc. are purely dependent on public tax.
  • They are needed to float the reserves for funding pensions, unemployment benefits, childcare, and other socio-economic schemes.
  • They are required to fund the sectors that are crucial for the social well-being such as security, scientific research, protection of ecology, and environmental resources.

Difference between the Principles of Taxation:

It is generally imposed on the consumption of government goods and services.It is imposed in proportion to the income and wealth of an individual.
It is a tradition concept.It is a progressive concept.
Intended toward specific consumption.Does not emphasize on specific consumption.
Is criticized and generally not accepted.Broadly practical and accepted.
Income is not considered a vital elementIncome is considered an important element.
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Downsides:

Though benefit principle taxation sounds justifiable, on ground, this principle is only based on the feeling that one should pay for what one gets. Measuring one’s consumption on public goods is not conceivable.

Some of the drawbacks of benefit principle taxation are

  • The government will be forced to esti¬mate the volume of various individuals’ and groups’ benefits and regulate taxes accordingly.
  • The benefit principle tax is impossible to apply on many public goods and services.
  • On road tax is complicated and unnatural to calculate the estimated tax to be borne for the consumption of using the mode of transport.
  • For non-rival and non-exclusive products, the benefit principle just provides a theoretical measure but not a practical measure.
  • Taxation becomes voluntary in this principle and consumers may opt out and evade from paying tax.
  • There can be instances that public may raise concern that they are harmed by the public goods and instead of paying the tax they may form union to seek subsidy.

Therefore, practically, the benefit principle taxation is not a wise policy as it does not define the measure and precision.

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