Define the types of principles of taxation, and illustrate with examples the different types of existing tax systems based on these principles

Answer 1

The ability to pay principle states that taxes should be levied according to a person's ability to bear that tax burden. In order to help evaluate the equity and fairness of tax systems, three types of tax systems exist:
•A progressive tax exists if higher income taxpayers pay a larger portion of their income in taxes than do low-income taxpayers. Because the federal income tax is set up so that the marginal tax rate increases as income increases, this tax system is considered to be a progressive tax.
•A proportional tax exists if the tax rate remains constant as the tax base changes. An example of a proportional tax is the Medicare tax. In 2014, the Medicare tax rate was 2.9% of income regardless of income level.
•A regressive tax is a tax in which the tax rate decreases as the tax base increases.
Other types of taxes may be based on the benefit principle, which is the idea that people should pay taxes based on the benefits they receive from the services that those taxes provide. For example, each time you purchase gasoline for a car, you pay a road tax. The road tax is used to pay for road construction and repair; thus, those who benefit from the roads are also the people paying the tax.