Two families who live in Wawa have identical incomes.The Smiths deduct $5000 from their taxable income for child support interest paid during the year,while the Jones family is not eligible for this deduction.What does this situation exemplify
A)an application of the benefits principle of taxation
B)a violation of horizontal equity
C)a violation of vertical equity
D)an application of egalitarian tax rules

Question

Quizplus · Accepted Answer

This situation exemplifies a violation of horizontal equity, which states that taxpayers in similar situations should be treated equally by the tax system. Since the two families have identical incomes, they should be taxed in the same way. However, the fact that the Smiths are eligible for a deduction that the Jones family is not eligible for means that they are not being treated equally.

Two Families Who Live in Wawa Have Identical Incomes