Which of the following statements about taxes based on an individual's ability to pay is accurate?

• A. They require all individuals to pay the same amount of tax regardless of income.
• B. They are designed so that individuals with higher incomes pay a larger share of their income in taxes.
• C. They are only applied to goods and services, not to income.
• D. They are considered regressive because they place a heavier burden on low-income individuals.

Answer: (B)

Verified step by step guidance

1. Understand the concept of 'ability to pay' principle in taxation, which means taxes are structured based on an individual's capacity to bear the tax burden, often linked to income levels.
2. Recognize that a tax system based on ability to pay typically requires individuals with higher incomes to pay a larger proportion of their income in taxes, reflecting progressivity.
3. Evaluate the given statements: the first statement describes a flat tax (same amount for all), which does not align with ability to pay; the third statement incorrectly limits ability-to-pay taxes to goods and services; the fourth statement describes regressive taxes, which are the opposite of ability-to-pay taxes.
4. Identify that the accurate statement is the one indicating that individuals with higher incomes pay a larger share of their income in taxes, consistent with the progressive tax system under the ability-to-pay principle.
5. Summarize that ability-to-pay taxes are designed to be progressive, ensuring tax burden increases with income, unlike regressive or flat taxes.