What principle does horizontal equity in taxation refer to?

Horizontal equity in taxation refers to the principle that individuals with similar economic circumstances, specifically those with the same income level, should pay the same amount in taxes. This concept promotes fairness by ensuring that taxpayers in equivalent situations are treated equally under the tax system.

This principle is fundamental because it establishes a baseline of fairness, preventing discrimination based on factors unrelated to income. For instance, if two individuals earn the same amount yet pay different tax amounts, it creates an inequitable situation, undermining the system's integrity.

Other options, although related to tax principles, do not accurately define horizontal equity. The idea of all taxpayers paying the same tax rate does not consider income differences, while uniform tax rates across income levels would not respect the varying financial capabilities of taxpayers. Finally, the notion that higher-income taxpayers pay lower rates challenges the core principles of equity and fairness in a progressive tax system, which typically imposes higher rates on those with greater income.