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Ability to Pay Principle

Definition - What does Ability to Pay Principle mean?

The ability to pay principle refers to a taxation principle where the people within a jurisdiction (county, state, county, etc.) are taxed based on the individual's ability to pay the tax. In an ability-to-pay taxation system, it is always the case that those people who make the least amount of money pay the least amount of taxes while those people who make the most amount of money pay the highest amount of taxes.

Justipedia explains Ability to Pay Principle

The United States utilizes an ability to pay principle in relation to federal taxes. Furthermore, some states in the United States also use an ability to pay principle system in relation to state taxes. Very recently the Internal Revenue Service announced the new tax brackets for the 2015 financial year (i.e. the brackets that will be used when filing taxes at the beginning of 2016). Those in the lowest tax bracket are required to pay 10% of their taxable income while those in the highest tax bracket are required to pay $119,996.25 plus 39.6% of any income over $413,200.

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