What Is Ability-To-Pay Taxation?

The ability-to-pay philosophy of taxation maintains that taxes should be levied according to a taxpayer’s ability to pay. The idea is that people, businesses, and corporations with higher incomes can and should pay more in taxes. 

Understanding the Ability-To-Pay Principle

Ability-to-pay taxation argues that those who earn higher incomes should pay a greater percentage of those incomes in taxes compared with those who earn less. For example, in 2020 individuals in the United States with taxable income less than $9,875 faced a 10% income tax rate, while those with taxable income of more than $518,000 faced a rate of 37%, the nation’s top individual rate. Earnings between those amounts face tax rates as set by income brackets.

The idea underlying ability-to-pay taxation is that everyone should make an equal sacrifice in paying taxes, and because people with more money effectively have less use for a given dollar, paying more of them in taxes does not impose a greater burden. Think of it this way: To a person with earns $1 million a year, $10,000 will make very little difference in their life, while it will make a big difference to a person earning only $60,000 a year.

History of Ability-to-Pay Taxation

The idea of a progressive income tax—that is, that people with the ability to pay more should pay a higher percentage of their income—is centuries old. In fact, it was espoused by none other than Adam Smith, considered the father of economics, in 1776.

Smith wrote: “The subjects of every state ought to contribute toward the support of the government, as near as possible, in proportion to their respective abilities; that is in proportion to the revenue which they respectively enjoy under the protection of the state.”

Arguments for Progressive Taxation

Advocates of ability-to-pay taxation argue that those who have benefitted most from the nation’s way of life in the form of higher incomes and greater wealth can afford and should be obligated to give back a little more to keep the system running.

The argument is that the society that government tax revenue has helped build—infrastructure such as highways and fiberoptic communications networks, a strong military, public schools, a free market system—provide the environment in which their success is possible and in which they can continue to enjoy that success.

Criticism of Ability-to-Pay Taxation

Critics of progressive taxation argue that it is fundamentally unfair. They say it penalizes hard work and success and reduces the incentive to make more money. Many argue that everyone should pay the same income-tax rate—a “flat tax”—to make the system more equitable.

Progressive Taxation and Inequality

While the U.S. still maintains a progressive tax system, tax rates for the rich have plummeted over the past several decades. When President Ronald Reagan took office in 1981, the highest income tax bracket for individuals was 70%. In 2020, the top rate for incomes is 37%. Meanwhile, inequality has reached levels not seen in at least a century. The top 1% now holds more wealth than the bottom 90%.

What Is Affirmative Action?

The term affirmative action refers to a policy aimed at increasing workplace and educational opportunities for people who are underrepresented in various areas of our society.

Affirmative action focuses on demographics with historically low representation in leadership, professional, and academic roles. It is often considered a means of countering discrimination against particular groups.

Affirmative action programs are commonly implemented by businesses and governments by taking individuals’ race, sex, religion, or national origin into account when hiring.

How Affirmative Action Works

The main purpose of affirmative action is to diversify various parts of society. It is a government-backed policy that was developed to provide inadequately represented groups of people with access to opportunities in academia, the private workforce, and government jobs.

These opportunities include admission to schools and jobs in professional positions, as well as access to housing and financing.

History and Implementation

The affirmative action policy rose to prominence in the United States in the 1960s as a way to promote equal opportunity for various segments of society. The policy was developed to enforce the Civil Rights Act of 1964, which sought to eliminate discrimination.

Early implementations of affirmative action largely focused on halting the continued social segregation of minorities and other disadvantaged individuals from institutions and opportunities.

Despite legislation that outlawed discrimination practices in the U.S., tangible change in the status quo was not immediate.

In more recent years, campaigns have expanded to make organizations and institutions even more inclusive by pushing for greater gender diversity. Newer policies are also aimed at providing more access to opportunities for covered veterans and people with disabilities.

Elements of Affirmative Action

Efforts to stimulate change can take the form of financial assistance such as grants, scholarships, and other support earmarked to help with access to higher education opportunities.

In addition, hiring practices may be structured to require the inclusion of diverse candidates for consideration for job openings. Government agencies may mandate that companies and institutions populate their ranks with a minimum percentage of qualified professionals from varying ethnicities, genders, and cultures.

Failure to meet such requirements could disqualify institutions from receiving government funding or being able to compete for public contracts.

Examples of Affirmative Action

Affirmative action has been put to work since the 1960s, despite lack of progress at times and rulings by legal authorities such as the Supreme Court that have hindered it. Here are some examples of the policy in action.

• In 1965, President Lyndon B. Johnson issued Executive Order 11246. It required that all government contractors and subcontractors expand job opportunities for minorities. It also established the Office of Federal Contract Compliance (OFCC) to enforce the order.
• In 1970, the Labor Department ordered and authorized flexible goals and timetables to address the underutilization of minorities by federal contractors. In 1971, women were included in the order.
• In 1973, President Richard M. Nixon signed the Rehabilitation Act of 1973. It required agencies to submit an affirmative action plan to the EEOC that detailed the hiring, placement, and advancement of individuals with disabilities.
• In 1983, President Ronald Reagan issued Executive Order 12432. It required every federal agency with substantial procurement or grant-making authority to develop a Minority Business Enterprise development plan.
• In 1990, President George H.W. Bush signed the Americans with Disabilities Act. A year later, he signed the Civil Rights Act of 1991.
• In 1998, the U. S. House of Representatives and the U. S. Senate stopped attempts to eliminate specific affirmative action programs. Both houses of Congress prohibited the abolishment of the Disadvantaged Business Enterprise program. In addition, the House refused to allow the elimination of affirmative action in admissions in higher education programs funded through the Higher Education Act.
• In 2022, the Wall Street Journal reported that dozens of major U.S. companies including Apple, Alphabet, American Airlines, and General Motors were urging the Supreme Court to uphold the continued use affirmative action policies in college admissions. They asserted that greater diversity on college campuses contributed to ongoing innovation in commerce and successful business endeavors.

Advantages and Disadvantages of Affirmative Action

The implementation and continued use of affirmative action policies have drawn strong support as well as staunch criticism.

Advantages

An obvious benefit of affirmative action is the opportunities they provide to people who otherwise might not have them. These opportunities include access to education for students who may be disadvantaged and career advancement for employees who may be blocked from rising up the corporate ladder.

Proponents of affirmative action say that the effort must continue because of the low percentages of diversity in positions of authority and in the media, as well as limited acknowledgment of the achievements of marginalized or unrepresented groups.

Disadvantages

Opponents of affirmative action frequently call these efforts a collective failure. They cite as evidence the tiny changes to the status quo after decades of effort. The cost of such programs, coupled with a belief that affirmative action forces the populace to make unwarranted accommodations, drives a significant part of the opposition.

Certain individuals believe that there is little to no bias in society. They argue that affirmative action results in reverse discrimination, which can often lead to qualified candidates being overlooked in academics and the workplace in favor of less qualified candidates who meet policy standards.

Affirmative Action Statistics

Affirmative action is a very controversial topic and often leads to heated debates between those who support it and people who feel it doesn’t benefit society. Is there a way to quantify how people feel and how it’s working?

According to a Gallup poll, more than half of Americans (61%) believe in affirmative action policies. This level of support has increased since the last poll, where only 47% to 50% of individuals thought affirmative action was necessary. This increase in support is especially important, given the active issues surrounding race and identity in the U.S. and elsewhere.

Many Americans feel positive about diversity. They are comfortable with the makeup of their communities, saying diversity positively impacts society as a whole.

There is some divide when it comes to identifying race and ethnicity for purposes of hiring. In fact, about 74% of individuals feel that a candidate’s racial or ethnic background shouldn’t be considered when hiring or promoting them. These activities should only be based on someone’s merit and qualifications.

What Are Appraisal Costs?

Appraisal costs are a specific category of quality control costs. Companies pay appraisal costs as part of the quality control process to ensure that their products and services meet customer expectations and regulatory requirements. These costs could include expenses for field tests and inspections.

Understanding Appraisal Costs

Appraisal costs can be a key expense for companies seeking to maintain high levels of customer and regulatory satisfaction. Payments for secret shopper salaries, factory floor inspectors, and technical screening equipment all fall into this category. Companies that spend large amounts of money on appraisal costs show that they are concerned with their reputations.

To prevent defective inventory or products from reaching their customers, companies get creative while incurring appraisal costs to spot suspect products. In the end, it is less expensive to incur appraisal costs than to lose customers who are frustrated by the receipt of low-quality goods.

The Internet and social media now give consumers unprecedented opportunities to voice their dissatisfaction with any companies or products that fail to meet their standards. The threat of unpleasant reviews or viral PR mishaps keeps companies on their toes and investing in appraisals of their products.

Appraisal costs can simply be looked at as part of the cost of doing business as well as the cost of creating a product or service. A company’s reputation is one of the most important assets that it has. Once a company’s reputation slips into the negative after the release of faulty products and bad publicity, it is almost always impossible or extremely difficult to shift consumer opinion.

It is for this reason that management needs to pay strict attention to quality control to ensure the lasting success of their company; appraisal costs are a part of that process.

Examples of Appraisal Costs

There are many examples of appraisal costs and every industry has different types of appraisals and therefore the costs associated with them. Appraisal costs can even be driven by where the industry is in a market cycle.

A classic appraisal cost would be what is spent to inspect materials delivered from suppliers. For example, let’s say a music retailer gets a shipment of guitars from a major manufacturer. Last year, the guitar manufacturer’s first round of guitars had faulty tuners, causing customers to return opened products, file complaints with the guitar store’s corporate parent, and in some cases, switch their loyalty to a different music retailer.

So this year, when the new shipment of guitars comes in, the music retailer opens the boxes, inspects each guitar to make sure the tuners are in good shape, and then repackages them before making them available to customers. This process costs money and time, which is accounted for on the balance sheet as an appraisal cost.

Other examples of appraisal costs include:

• Inspecting work-in-process materials
• Inspecting finished goods
• The supplies used to conduct inspections
• The inventory destroyed as part of the testing process
• Supervision of the inspection staff
• Depreciation of test equipment and software
• Maintenance of any test equipment

The next best thing to incurring appraisal costs includes working on increasing the quality of the production processes of all suppliers and the company itself. The idea of vendor and supply chain management seeks to improve the entire process so that it’s inherently incapable of producing defective parts. Like a final product, suppliers need to ensure that their raw materials are in good condition, or else they risk losing supply contracts with the final producer of a good.

What Is an Anti-Dumping Duty?

An anti-dumping duty is a protectionist tariff that a domestic government imposes on foreign imports that it believes are priced below fair market value. Dumping is a process wherein a company exports a product at a price that is significantly lower than the price it normally charges in its home (or its domestic) market.

In order to protect their respective economy, many countries impose duties on products they believe are being dumped in their national market because these products have the potential to undercut local businesses and the local economy.

Understanding Anti-Dumping Duties

In the U.S., the International Trade Commission (ITC)–an independent government agency–is tasked with imposing anti-dumping duties. Their actions are based on recommendations they receive from the U.S. Department of Commerce and investigations by the ITC and/or the Department of Commerce. 

In many cases, the duties imposed on these goods exceeds the value of the goods. Anti-dumping duties are typically levied when a foreign company is selling an item significantly below the price at which it is being produced.

While the intention of anti-dumping duties is to save domestic jobs, these tariffs can also lead to higher prices for domestic consumers. And, in the long-term, anti-dumping duties can reduce the international competition of domestic companies producing similar goods.

The World Trade Organization (WTO) is an international organization that deals with the rules of trade between nations. The WTO also operates a set of international trade rules, including the international regulation of anti-dumping measures. The WTO does not intervene in the activities of companies engaged in dumping. Instead, it focuses on how governments can—or cannot—react to the practice of dumping. In general, the WTO agreement permits governments to act against dumping “if it causes or threatens material injury to an established industry in the territory of a contracting party or materially retards the establishment of a domestic industry.”

This intervention must be justified in order to uphold the WTO’s commitment to free-market principles. Anti-dumping duties have the potential to distort the market. In a free market, governments cannot normally determine what constitutes a fair market price for any good or service.

Example of an Anti-Dumping Duty

In June 2015, American steel companies United States Steel Corp., Nucor Corp., Steel Dynamics Inc., ArcelorMittal USA, AK Steel Corp., and California Steel Industries, Inc. filed a complaint with the U.S. Department of Commerce and the ITC. Their complaint alleged that several countries, including China, were dumping steel into the U.S. market and keeping prices unfairly low.

After conducting a review, one year later the U.S. announced that it would be imposing a total of 522% combined anti-dumping and countervailing import duties on certain steel imported from China. In 2018, China filed a complaint with the WTO challenging the tariffs imposed by the Trump administration. Since then, the Trump administration has continued to use the WTO to challenge what it claims are unfair trading practices by the Chinese government and other trading partners.