what is vertical equity 
vertical equity is a method of collecting income tax in which the taxes paid increase with the amount of earned income the driving principle behind vertical equity is that those who have the ability to pay more taxes should contribute more than those who are not this can be contrasted with horizontal equity whereby individuals with similar income and assets should pay the same amount in taxes understanding vertical equitythe equity of a tax system speaks to whether the tax burden is distributed fairly among the population the ability to pay principle states that the amount of tax an individual pays should be dependent on the level of burden the tax will create relative to the wealth of the individual the ability to pay principle gives rise to two notions of fairness and equity vertical and horizontal equity vertical equity drives the principle that people with higher incomes should pay more tax through proportional or progressive tax rates in proportional taxation the amount of taxes paid increases directly with income everyone pays the same proportion of their income in tax since the effective average tax rate does not change with income example of vertical equityfor example of vertical equity consider a taxpayer that earns 100 000 per annum and another that earns 50 000 per annum if the tax rate is flat and proportional at 15 the higher income earner will pay 15 000 tax for the given tax year while the taxpayer with the lower income will have a tax liability of 7 500 with the same rate applied across all income amounts the individuals with more resources or higher income levels will always pay more tax in dollars than lower earners progressive taxationprogressive taxation includes tax brackets in which people pay taxes based on the tax bracket that their income places them each tax bracket will have a different tax rate with higher income brackets paying the highest percentages under this taxation system effective average tax rates increase with income so that the rich pay a higher share of their income in taxes than people whose self reported incomes were in the lowest income bracket for example in the united states a single taxpayer that earns 100 000 has a top marginal tax rate of 24 as of 2019 1 their tax liability would be 18 174 50 for an effective tax rate of 18 17 the top marginal tax rate for a single taxpayer whose annual income is 50 000 is 22 1 in this case this taxpayer would pay 6 864 for an effective tax rate of 13 73 the other yardstick that is used to measure equity in a taxation system is the horizontal equity which states that people with similar abilities to pay should contribute the same amount in taxes to the economy the basis behind this notion is that people in the same income group are equal in their contribution capacity to society and thus should be treated the same by imposing the same level of income tax for example if two taxpayers earn 50 000 they should both be taxed the same rate since they both have the same wealth or fall within the same income bracket however horizontal equity is hard to achieve in a tax system with loopholes deductions and incentives because the provision of any tax break means that similar individuals effectively do not pay the same rate 