Fairness, like beauty, is often in the eyes of the beholder. When it comes to taxes, however, most debates about fairness rely on one of two principles of tax fairness: the benefits principle and the ability-to-pay principle.

According to the benefits principle of tax fairness, those who benefit from public spending should bear the burden of the tax that pays for that spending. For example, those who benefit from a road should pay for that road’s upkeep, those who fly on airplanes should pay for air traffic control, and so on. The benefits principle is the basis for some parts of the U.S. tax system. For example, revenue from the federal tax on gasoline is specifically reserved for the maintenance and improvement of federal roads, including the Interstate Highway System. In this way motorists who benefit from the highway system also pay for it.

The benefits principle is attractive from an economic point of view because it matches well with one of the major justifications for public spending—the theory of public goods, which will be covered in Chapter 17. This theory explains why government action is sometimes needed to provide people with goods that markets alone would not provide, goods like national defense. If that’s the role of government, it seems natural to charge each person in proportion to the benefits he or she gets from those goods.

Practical considerations, however, make it impossible to base the entire tax system on the benefits principle. It would be too cumbersome to have a specific tax for each of the many distinct programs that the government offers. Also, attempts to base taxes on the benefits principle often conflict with the other major principle of tax fairness: the ability-to-pay principle, according to which those with greater ability to pay a tax should pay more.

The ability-to-pay principle is usually interpreted to mean that high-income individuals should pay more in taxes than low-income individuals. Often the ability-to-pay principle is used to argue not only that high-income individuals should pay more taxes but also that they should pay a higher percentage of their income in taxes. We’ll consider the issue of how taxes vary as a percentage of income later.

The Whiskey Rebellion described at the beginning of this chapter was basically a protest against the failure of the whiskey tax to take the ability-to-pay principle into account. In fact, the tax made small distillers—farmers of modest means—pay a higher proportion of their income than large, relatively well-off distillers. It’s not surprising that farmers were upset that the new tax completely disregarded the ability-to-pay principle.