What is vertical equity in the context of taxation?

Vertical equity in taxation refers to the principle that individuals with a greater ability to pay taxes should contribute a higher amount relative to their income or wealth. This concept is often expressed through progressive taxation, where tax rates increase as income increases. The idea is rooted in the belief that it is fair for wealthier individuals to support government services and programs at a higher rate, reflecting their ability to bear a larger tax burden without sacrificing their standard of living.

This principle stands in contrast to other taxation approaches, such as a flat tax, where everyone pays the same rate regardless of their income level, which would be an example of horizontal equity—treating equals equally. Additionally, the notion of lower taxes for wealthy individuals runs counter to the concept of vertical equity, which advocates for higher contributions from those who can afford it. In essence, option B aligns with the understanding that a fair tax system should consider individuals' varying capacities to pay, aiming for a more equitable distribution of the tax burden.