A tax on expensive speedboats that are purchased only by the wealthy is not likely to satisfy the condition of vertical equity on the basis that:
A)wealthy buyers are most likely to be subject to the implications of the flypaper theory of tax incidence
B)horizontal equity is most associated with a tax on luxury items
C)buyers can easily substitute other luxuries for expensive speedboats
D)it is very unlikely that the burden of the tax will fall on workers who make the expensive speedboats

Question

Quizplus · Accepted Answer

Vertical equity requires individuals with higher incomes to pay a higher proportion of taxes compared to those with lower incomes. A tax on expensive speedboats may not satisfy this condition as wealthy buyers can easily substitute other luxuries for expensive speedboats, reducing the proportion of their income that is subject to this tax.

A Tax on Expensive Speedboats That Are Purchased Only by the Wealthy