Horizontal Equity

What is 'Horizontal Equity'

Horizontal equity is an economic theory that states that individuals with similar income and assets should pay the same amount in taxes. Horizontal equity should apply to individuals considered equal regardless of the tax system in place. The more neutral a tax system is the more horizontally equitable it is considered to be.

BREAKING DOWN 'Horizontal Equity'

Horizontal equity is hard to achieve in a tax system with loopholes, deductions and incentives, because the presence of any tax break means that similar individuals do not pay the same rate. For example, by allowing mortgage payments to be deducted from income tax, governments create a difference in tax payments between two tax filers who may otherwise be considered economically similar.

RELATED TERMS
  1. Effective Tax Rate

    The average rate at which an individual or corporation is taxed. ...
  2. Tax Rate

    The percentage at which an individual or corporation is taxed. ...
  3. Flat Tax

    A system that applies the same tax rate to every taxpayer regardless ...
  4. Direct Tax

    A tax that is paid directly by an individual or organization ...
  5. Ability To Pay

    An economic principle stating that the amount of tax an individual ...
  6. Tax Base

    The assessed value of a set of assets, investments or income ...
Related Articles
  1. Investing

    What is Horizontal Analysis?

    Horizontal analysis compares a company’s balance sheet or income statement over two or more accounting periods.
  2. Personal Finance

    Understanding Taxes

    Taxes are mandatory fees that individuals and corporations must pay to their governments.
  3. Investing

    What's a Horizontal Merger?

    A horizontal merger occurs when companies within the same industry merge.
  4. Personal Finance

    The Most Controversial Tax Deductions

    When it comes to taxes, it's hard to make people happy but these deductions raised more than the average amount of controversy.
  5. Personal Finance

    Comparing Regressive, Proportional and Progressive Taxes

    Learn about the basic differences between three common tax systems.
  6. Personal Finance

    Explaining Progressive Tax

    A progressive tax is a levy in a tax system where the tax rate increases as the taxable base increases.
  7. Investing

    Calculating Net of Tax

    Net of tax is a figure that has been adjusted for taxes.
  8. Personal Finance

    3 Federal Income Tax Facts You Didn't Know

    Learn about three federal income tax facts that most Americans may not know from one of the most trusted financial resources on the Web.
  9. Personal Finance

    Use Tax Vs. Internet Sales Tax: How Are They Different?

    Learn about the differences between a use tax and an Internet sales tax. Find out about transactions in which the taxes apply, and to whom they apply.
  10. Personal Finance

    Understanding Income Tax

    Income tax is a levy many governments place on revenue of entities within their jurisdiction.
RELATED FAQS
  1. What's the difference between the marginal tax rate system and a flat tax?

    Find out about the difference between marginal tax rates and flat taxes. Gain insights on both systems and the arguments ... Read Answer >>
  2. What are the differences between regressive, proportional and progressive taxes?

    Understand the differences between the most common tax systems including regressive taxes, proportional taxes and progressive ... Read Answer >>
  3. What is the difference between a state income tax and a federal income tax?

    Learn the difference between state income tax and federal income tax based on tax rates, deductions, tax credits and taxable ... Read Answer >>
  4. What business structures expose entrepreneurs to unlimited liability?

    Understand the advantages and disadvantages of a horizontal integration. Learn when a company would want to integrate horizontally. Read Answer >>
  5. Is progressive tax the same thing as marginal tax rate?

    Learn how a marginal tax rate is a form of a progressive tax rate. Learn the pros and cons of such a tax policy and who may ... Read Answer >>
  6. How does the effective tax rate for an individual differ from that of a corporation?

    Read about the effective tax rate for individuals when compared with the effective tax rate for corporations, including how ... Read Answer >>
Hot Definitions
  1. AAA

    The highest possible rating assigned to the bonds of an issuer by credit rating agencies. An issuer that is rated AAA has ...
  2. GBP

    The abbreviation for the British pound sterling, the official currency of the United Kingdom, the British Overseas Territories ...
  3. Diversification

    A risk management technique that mixes a wide variety of investments within a portfolio. The rationale behind this technique ...
  4. European Union - EU

    A group of European countries that participates in the world economy as one economic unit and operates under one official ...
  5. Sell-Off

    The rapid selling of securities, such as stocks, bonds and commodities. The increase in supply leads to a decline in the ...
  6. Brazil, Russia, India And China - BRIC

    An acronym for the economies of Brazil, Russia, India and China combined. It has been speculated that by 2050 these four ...
Trading Center