Question

Ms. Mahmood is a retired schoolteacher whose pension income is $25,000 per year. She also receives Social Security income of $5,000 per year. Mr. Little is a young man who does not choose to work. He inherited $600,000 from his Aunt Clara, which he invested in a bond fund that provides a 5 percent return, generating $30,000 income per year. If we are concerned about the equity of taxation, should we consider these two people as equals and tax them equally? Explain why or why not.

Answer 1

No, we should not consider these two people as equal earning individuals and tax them equally. The equity of taxation explains that the government should tax the individual equally who are earning and are of same age group in the same tax brackets. The business or professional income are not taxed the same as the individual who is earning a monthly income from being an employee. According to the tax law, the sources of the income of an individual decides how to tax from a person, the age group of the person decides the tax brackets and tax rates and deductions allowed to them. One cannot tax a retired person same as a young person because both belong to different age group even though the income is same. Both will have different benefits and deductions and both have a different source of income.