Horizontal equity aims for equal tax treatment of those in the same economic situation, treating equals equally based purely on income figures. However, exactly equal treatment is difficult to achieve due to tax breaks and incentives. Vertical equity maintains that those with more wealth and income should pay more in taxes than those with less, as they are better able to do so. This principle is fulfilled through progressive taxation where higher income brackets face higher tax rates, with revenues redistributed to poorer members of society through benefits and tax credits.

1. Horizontal and Vertical Equity
Horizontal and vertical equity are two different concepts, but can work together in the same tax
system with the aim of creating better equity overall.
Horizontal Equity:
-A theory stating that people in the same economic situation should pay the same taxes; that is,
individuals in the same income bracket should have to pay an identical amount in tax. Essentially,
this is that equals should be treated as equals.
-Horizontal equity removes discrimination on the grounds of gender, race, or profession, because
it works purely with the figures.
-However, in a tax system with loopholes and incentives, this is difficult to achieve, because the
presence of any tax break means that individuals are no longer paying the same rate. For
example, if two people have the exact same income, but one has a child, the one with a
child could receive child benefits in the form of tax credits, which help to cover the cost of
childcare etc. However, as soon as this measure to help one person is introduced, there is no
longer true horizontal equity between those two people, despite their income being in the same
tax bracket.
Vertical equity:
-The principle that those with more wealth, resource access, and income should have to pay more
in tax than those with less- as they are able to do so. In essence, this says that those with more
income should be the main contributors to the support of those with less income; because the
more money you earn over and above the amount you need for a good standard of living, the
more able you are to do without a higher proportion of what you earn.
-This is fulfilled through progressive taxation, where those higher income brackets have to pay a
higher rate of tax on the proportion of their income that falls into the progressively higher bands.
This money is redistributed by the government through benefits and tax credits to poorer
members of society.