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.

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. Ability-To-Pay Taxation

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

    A guaranteed minimum income plan advocated by economist Milton ...
  3. Tax Evasion

    An illegal practice where a person, organization or corporation ...
  4. Progressive Tax

    A tax that takes a larger percentage from the income of high-income ...
  5. Federal Tax Brackets

    Income tax groupings specified by the Internal Revenue Service ...
  6. Tax Rate

    The percentage at which an individual or corporation is taxed. ...
Related Articles
  1. Retirement

    For IRAs, Time Is Money

    Don't procrastinate. The timing of your contributions can mean thousands more in savings.
  2. Options & Futures

    How To Owe Nothing On Your Federal Tax Return

    You have the control to determine whether you owe in April. Learn more here.
  3. Taxes

    Do Tax Cuts Stimulate The Economy?

    Learn the logic behind the belief that reducing government income benefits everyone.
  4. Budgeting

    9 Ways To Use A Tax Refund

    How do you plan to spend your refund this year? We provide some smart suggestions.
  5. Investing Basics

    Top 10 Solutions For A Big Tax Bill

    Ignoring a big tax bill will only increase your pain. Fortunately, there are ways to diffuse the tax time bomb before it explodes.
  6. Economics

    What Happened at the Fiscal Cliff?

    The fiscal cliff refers to a scenario on December 31, 2012, in which the Bush-era tax cuts were set to expire.
  7. Economics

    Defining Cost-Push Inflation

    Cost-push inflation is caused by an increase in the cost of production, due to higher prices for raw materials or labor.
  8. Economics

    Calculating the Consumption Function

    The consumption function shows the level of consumer spending as it relates to disposable income.
  9. Fundamental Analysis

    Examining Mexico's Trillion-Dollar GDP

    Examining the gross domestic product growth and composition of Mexico, the second largest economy in Latin America
  10. Fundamental Analysis

    What Causes Inflation in the United States

    Inflation is the main catalyst behind U.S monetary policy. But what causes this phenomenon of sustained rising prices? Read on to find out.
RELATED FAQS
  1. Are dividends considered passive or ordinary income?

    Despite the fact that earning dividends requires no active participation on the part of the shareholder, they do not meet ... Read Full Answer >>
  2. Is dividend income taxable?

    Dividend income is taxable but it is taxed in different ways depending on whether the dividends are qualified or nonqualified. ... Read Full Answer >>
  3. Can I use my IRA savings to start my own savings?

    While there is no legal reason why you cannot withdraw funds from your IRA to start a traditional savings account, it is ... Read Full Answer >>
  4. Are spousal Social Security benefits taxable?

    Your spousal Social Security benefits may be taxable, depending on your total household income for the year. About one-third ... Read Full Answer >>
  5. What is the Social Security tax rate?

    The Social Security tax rate is 12.4% as of 2015. Of that amount, the employee is responsible for half, or 6.2%, and the ... Read Full Answer >>
  6. What is the Social Security administration responsible for?

    The main responsibility of the U.S. Social Security Administration, or SSA, is overseeing the country's Social Security program. ... Read Full Answer >>

You May Also Like

Hot Definitions
  1. Recession

    A significant decline in activity across the economy, lasting longer than a few months. It is visible in industrial production, ...
  2. Bubble Theory

    A school of thought that believes that the prices of assets can temporarily rise far above their true values and that these ...
  3. Stock Market Crash

    A rapid and often unanticipated drop in stock prices. A stock market crash can be the result of major catastrophic events, ...
  4. Financial Crisis

    A situation in which the value of financial institutions or assets drops rapidly. A financial crisis is often associated ...
  5. Election Period

    The period of time during which an investor who owns an extendable or retractable bond must indicate to the issuer whether ...
  6. Shanghai Stock Exchange

    The largest stock exchange in mainland China, the Shanghai Stock Exchange is a nonprofit organization run by the China Securities ...
Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!