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Tax equity is the principle that ensures tax systems treat taxpayers fairly by promoting the idea that individuals in similar financial situations should be treated equally, while those in different circumstances may be taxed in accordance with their ability to pay. This principle encompasses both vertical equity, where those with greater income pay more than those with less, and horizontal equity, where individuals with similar incomes are taxed at similar rates.

This focus on fairness is a cornerstone of just tax systems and helps to maintain public trust and compliance. Tax equity acknowledges that income levels and individual circumstances can vary greatly among taxpayers, and it therefore encourages a system of taxation that aligns with one’s economic situation. In doing so, it seeks to distribute the tax burden in a way that reflects the relative wealth and income of the taxpayers, promoting a sense of social fairness and justice within the tax framework.

Other principles like tax neutrality might consider how taxes influence economic decisions, tax efficiency focuses on minimizing economic distortions, and tax transparency emphasizes clear and understandable tax practices, but it is tax equity that specifically addresses the fairness aspect in the treatment of taxpayers.