ABSTRACT
This chapter focuses on the following issues: equity and politics of Taxation. Taxes should first be able to raise adequate amounts of revenues. In addition, they should not distort economic activities in the private market system. When individuals pay taxes proportional to the relative share of benefits they enjoy from the public goods and services financed by tax revenues, the economic efficiency will be maximized. Since each tax payer pays taxes equal to his or her benefits, tax schedules based on the Lindhal pricing are regarded as fair and equitable. Poorer people tend to pay relatively larger portions of their income for state sales tax, which causes regressivity. While current state sales and use tax systems threaten horizontal equity, the state corporate income tax was created to reduce horizontal inequity. Property taxes do not account for varying degrees of property inputs to produce business products. Electoral and legislative politics mostly threaten the adequacy of revenue collection and the equity of taxation.
