Distinguish between the two main principles of taxation.

The benefit principle states that individuals should pay taxes according to the benefits they receive from public goods and services provided by the government. According to this principle, if a person benefits more from public goods, they should pay more taxes. This principle ensures that taxpayers pay taxes based on the principle of "user pays." Example: Let's take the case of toll roads. When a person uses a toll road, they pay a fee for using that road. This fee is an example of the benefit principle in action, as the person pays taxes directly related to the public good (the road) they are using.

The ability-to-pay principle states that individuals should pay taxes based on their ability to pay, which usually means their income or wealth. According to this principle, a person with a higher income should pay more taxes than a person with a lower income. This principle ensures that the tax burden is distributed fairly among taxpayers based on their financial capacity. Example: Progressive income tax is a good example of the ability-to-pay principle. In this case, higher-income earners pay a larger percentage of their income as taxes, while lower-income earners pay a smaller percentage. This is due to the fact that higher-income earners have a greater ability to pay taxes, as they have more disposable income. In conclusion, the two main principles of taxation are the benefit principle and the ability-to-pay principle. The benefit principle focuses on taxpayers paying based on the benefits they receive from public goods, while the ability-to-pay principle ensures a fair distribution of the tax burden based on individuals' financial capacity.