When a tax system produces such revenue, it satisfies the principle of productivity. If a tax system fails to produce the needed revenue, the government may have to add to its debt by borrowing money. Horizontal equity means that taxpayers who have the same amounts of income should be taxed at the same rate. Vertical equity implies that wealthier people should pay proportionately more taxes than poorer people. This is sometimes called the principle of ability to pay.
Governments often try to achieve tax equity by making their taxes progressive.
A progressive tax has a rate that depends on the sum to which it is applied. The rate increases as that sum increases. For example, the U.S. individual income tax is a progressive tax because it applies a higher rate to larger taxable incomes than it does to smaller ones. Under an elastic system, taxes help stabilize the economy. Increasing taxes would leave less money for consumers to spend to send prices up.