What Is Ability to Pay? Ability to pay is an economic principle that states that the amount of tax an individual pays should be dependent on the level of burden the tax will create relative to the wealth of the individual.

How do you determine ability to pay?

Calculation of ability to pay

The ability to pay is calculated based on your income in calendar year T-2. From that income, an ability to pay exemption is deducted. Your ability to pay per year is then 12% of the income above the exemption.

What must be supported by ability to pay?

The ability-to-pay principle holds that those who have a greater ability to pay taxes—measured by income and wealth—should pay more. ... Proponents of "ability to pay" argue that a single dollar ultimately means less to a rich person than a wage earner, so the rich should pay more to equalize their sacrifice.