Vertical equity, in turn, generally requires that those with less ability be treated favorably relative to those with greater ability. Progressivity is a term often considered synonymous with vertical equity, but, as we shall discuss in a later column, the term is not applied consistently even by economists trained in the literature of public finance. This belief derives partly from trying to conceive of equity by putting people on a single scale so that the appropriate tax or expenditure is a simple function of what is measured on that scale. For instance, if taxes are a positive function of income and income only, then both horizontal and vertical equity fall out of the same functional form. I do not think they are necessarily inconsistent in holding those two positions.
Examples abound of the application of horizontal equity to government programs.
In an income tax, those with equal incomes should be made to pay equal taxes. Within a sales tax, those who purchase the same items at the same price should pay the same tax. Equal crimes should be made to bear the same punishment. Chemical companies should be subject to the same limitations on what chemicals can be used for agricultural purposes. Automobile companies should face the same limitations on pollution.