IS THE ABILITY TO PAY PRINCIPLE ETHICALLY BANKRUPT? Robert W. McGee 1 JEL Code: D63, H2 Abstract This article critically examines the ability to pay premise from an ethical perspective. The author finds the ability to pay principle to be ethically bankrupt whether one takes a utilitarian or rights approach to ethics. Introduction The ability to pay principle "maintains that taxes should be distributed according to the capacity of taxpayers to pay them." 2 This principle has been justified on several grounds over the years. A dollar taken from a rich man reduces total utility less than does a dollar taken from a poor man, or so the saying goes. The problem with this philosophical approach is that a closer analysis reveals 1 Seton Hall University. The author would like to thank the two anonymous reviewers for their comments. The author may be reached at bob@dumontinst.com. 2 DAVID N. HYMAN, PUBLIC FINANCE: A CONTEMPORARY APPLICATION OF THEORY TO POLICY 663 (6 th ed. 1999). Adam Smith's first Canon of taxation was that individuals should contribute "as nearly as possible in proportion to their respective abilities." ADAM SMITH, THE WEALTH OF NATIONS 310 (1776; 1937), as quoted in JOHN CULLIS AND PHILIP JONES, PUBLIC FINANCE AND PUBLIC CHOICE 244 (1998). Rosen defines ability to pay as the "Capacity to pay a tax, which may be measured by income, consumption, or wealth." HARVEY S. ROSEN, PUBLIC FINANCE 529 (5 TH ED. 1999).