Question

Some cities finance their airports with a departure tax: every person leaving the city by plane is charged a small fixed dollar amount that is used to help pay for building and running the airport. The departure tax follows the a. benefits-received principle. b. ability-to-pay principle. c. flat-rate principle. d. public-choice principle.

Short answer

The departure tax follows the \(a. \text{benefits-received principle}\). This is because the tax is charged to individuals as they use airport facilities, and the revenue is used to finance the airport's construction and operation. Those who use the airport directly benefit from it and pay for the airport's maintenance and operation through the tax.

Step-by-step solution

Define the taxation principles

To identify the correct principle, we must first understand what each principle entails: a. Benefits-received principle: A taxation principle based on the idea that individuals and businesses should pay taxes in proportion to the benefits they receive from the public goods and services provided by the government. b. Ability-to-pay principle: A taxation principle suggesting that people should pay taxes according to their ability to pay, with those who have more income and wealth paying more in taxes. c. Flat-rate principle: A taxation principle where everyone pays the same percentage of their income in taxes, regardless of their income level. d. Public-choice principle: A principle of taxation related to the efficiency of public spending, not a principle of taxation itself, so it doesn't apply here.

Compare the taxation principles to the departure tax

We need to determine which principle most closely applies to the departure tax scenario given in the exercise. a. Benefits-received principle: The departure tax is charged to individuals as they use the airport facilities, and the revenue is used to help finance the airport's construction and operation. Therefore, those who use the airport directly benefit from it and pay for the airport's maintenance and operation through the tax. This principle seems to align with the departure tax. b. Ability-to-pay principle: The departure tax is a fixed amount regardless of the individual's income or wealth, so it does not adhere to the ability-to-pay principle. c. Flat-rate principle: The departure tax is not based on a percentage of one's income, making it unrelated to the flat-rate taxation principle. d. Public-choice principle: As mentioned earlier, the public-choice principle is related to the efficiency of public spending and not a taxation principle.

Identify the applicable taxation principle

Based on the comparison in Step 2, it is clear that the departure tax aligns with the benefits-received principle, as those who use the airport directly benefit from its services and contribute to its funding through the tax. Hence, the correct answer is: a. Benefits-received principle.

Key concepts

Benefits-Received Principle

Imagine you enjoy some public services, like airports or roads, and it makes sense to pay for what you use, right? This is what the benefits-received principle is all about. Based on fairness, this principle suggests that individuals or businesses should contribute to the funding of a service in proportion to the benefits they receive from it.
Take the airport example from the exercise: everyone departing by plane pays a departure tax. Therefore, those who use the airport facilities and services most often contribute to its maintenance and improvements. This creates a system where users effectively reimburse part of the expenses required for their convenience.

• Aligns costs with service usage
• Fosters a usage-based funding model
• Encourages responsible usage since users share in the cost

The benefits-received principle ensures that there's a direct link between the costs incurred by a service and the payments collected from its users.

Ability-to-Pay Principle

Imagine if paying taxes were adjusted based on what you can afford, rather than what you use. This is the core idea of the ability-to-pay principle. It's based on the idea that those who earn more should pay more in taxes.

This principle proposes a progressive tax system where tax rates increase as income rises. It seeks to distribute the economic burden fairly so that those with greater financial means contribute more to funding public services.

• Considers income disparities
• Aims for social equity
• Adjusts tax rates based on financial capacity

While the departure tax mentioned earlier doesn't fit this principle, the ability-to-pay principle remains pivotal in designing fair and just tax systems globally. It helps ensure that everyone contributes to society according to their financial strength.

Public-Choice Principle

The public-choice principle isn't directly about taxation, but rather about how efficiently public spending is managed. This concept scrutinizes governmental decision-making processes, focusing on achieving outcomes that reflect the voters' preferences.

It's about optimizing the use of resources while considering the collective interest rather than individual gains, contrasting with how many taxation principles work. Though it doesn't directly define how taxes should be collected or distributed, it influences decision-making frameworks within public finance.

• Stresses governmental efficiency
• Analyzes civic and economic intentions behind public spending
• Aims for alignment of resource allocation with public needs

In a way, combining this principle with others helps create a broader understanding of how public resources should be managed for the collective good, even though it doesn’t directly dictate tax policies.