Horizontal Equity

AAA

DEFINITION of 'Horizontal Equity'

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.

INVESTOPEDIA EXPLAINS '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. Ability-To-Pay Taxation

    Taxation in the form of a progressive tax. The ability-to-pay ...
  2. Progressive Tax

    A tax that takes a larger percentage from the income of high-income ...
  3. Tax Rate

    The percentage at which an individual or corporation is taxed. ...
  4. Federal Tax Brackets

    Income tax groupings specified by the Internal Revenue Service ...
  5. Vertical Equity

    A method of collecting income tax in which the taxes paid increase ...
  6. Negative Income Tax - NIT

    A guaranteed minimum income plan advocated by economist Milton ...
Related Articles
  1. For IRAs, Time Is Money
    Retirement

    For IRAs, Time Is Money

  2. How To Owe Nothing On Your Federal Tax ...
    Options & Futures

    How To Owe Nothing On Your Federal Tax ...

  3. Do Tax Cuts Stimulate The Economy?
    Taxes

    Do Tax Cuts Stimulate The Economy?

  4. 9 Ways To Use A Tax Refund
    Budgeting

    9 Ways To Use A Tax Refund

comments powered by Disqus
Hot Definitions
  1. 80-10-10 Mortgage

    A mortgage transaction in which a first and second mortgage are simultaneously originated. The first position lien has an ...
  2. Passive ETF

    One of two types of exchange-traded funds (ETFs) available for investors. Passive ETFs are index funds that track a specific ...
  3. Walras' Law

    An economics law that suggests that the existence of excess supply in one market must be matched by excess demand in another ...
  4. Market Segmentation

    A marketing term referring to the aggregating of prospective buyers into groups (segments) that have common needs and will ...
  5. Effective Annual Interest Rate

    An investment's annual rate of interest when compounding occurs more often than once a year. Calculated as the following: ...
  6. Debit Spread

    Two options with different market prices that an investor trades on the same underlying security. The higher priced option ...
Trading Center