Benefits Received Rule

  

The benefits received rule isn't really a rule at all. It's more of a idea, an action plan.

The principle states that the amount a person pays in taxes should relate to the amount of benefits they receive from the government. In this theory, the relationship between citizen and government is closer to the relationship between customer and business. The benefits received rule more closely approximates a market model compared to the typical tax systems in play.

Most tax systems among the world's democracies are what's called "progressive" meaning that the size of someone's tax bill increases as income increases. The amount paid is decided by the ability to pay, not by the amount of government services received.

Related or Semi-related Video

Finance: What is a Pension?31 Views

00:00

finance a la shmoop. what is a pension? well it rhymes with tension, and likely

00:08

for good reason. if you're a teachers pension or a fireman's pension or [person wearing dark glasses writes something down]

00:12

another state employees pension that's backed up by a state that's going

00:16

bankrupt. Hi, California, Hi Illinois. well we're looking at you. all right people

00:21

well a pension is another term for a retirement fund. but what's special about

00:26

a pension is that the employer essentially forces you to put away money

00:31

for your retirement and then they invested for you.

00:35

how nice. or at least be sure you invest it well on a salary of 75 grand a state [gambling table shown]

00:39

employed ditch-digger might get a contribution of say 10 grand a year into

00:42

her pension, and that's each year 10 grand of forced savings for as long as

00:47

she you know digs ditches for the state. and in some states where the unions are

00:51

strong in the governing financial knowledge is weak the government

00:55

guarantees a minimum financial return on the pension investment made on behalf of

01:00

the employees. that is in California for example the state guarantees a 10% per

01:06

year return on their invested pension savings. if the invested return like [equation]

01:11

investing it in Wall Street and stocks and bonds and private equity funds and

01:15

all that stuff well if that invested return is less than that number less

01:19

than that 10%, then the state rights to the pinch and a check to cover the

01:23

incremental difference. yeah it's a huge Delta and it's well pretty much why you

01:28

a Californian Illinois you're going bankrupt remember. Jesus Saves

01:31

but Moses invests. [ Moses, holding stone tablets glares and demands interest]

01:35

Up Next

Finance: What is a Beneficiary?
25 Views

What is a Beneficiary? Beneficiaries are named in just about every investment. The beneficiary is the person who receives the profits or distributi...

Finance: What is a Living Trust?
35 Views

A regular trust is a legal vehicle into which assets are placed so that it is legally clear who is to receive what. A living trust is a established...

Find other enlightening terms in Shmoop Finance Genius Bar(f)