What is the ability to pay?

The ability to pay is a financial term concerning the individual's cash flow for repayment of loans. Another commonly related definition is the ability of individuals with high incomes to pay more taxes. Both concepts relate to the situations of cash flows for individuals and businesses. In the first scenario of the bank and creditors, they evaluate how well the debtor will be able to repay the principle and interest of the loan. This assessment and decisions come from the process of loan application, where banks and creditors look at credit history and cash flow. It focuses on the redistribution of income through government taxation. Individuals are limited by personal income, while companies have restrictions that relate to sales sales and profit after trading costs. The ability to pay is important in lending money as a bank creditors increase their risk in lending money. If debtors cannot repay the balance, the financial institution is likely to lose the loan to the default value and must instead of earning interest income from loansy.

In connection with taxation, the ability to pay the concept of redistribution, where poorer or individuals and families with low incomes are saved by heavy tax burden. This ultimately leads to gaining more tax burden on high income. Theoretically, this is redistributed by wealth, because individuals and families will have to separate themselves from their money by paying it to the government. Poor and low -income taxpayers will be able to maintain their money and complete a cycle of redistribution. These taxpayers can also obtain credits, refund, subsidies or other government benefits through the ability to pay concepts.

Wealth redistribution usually occurs through taxation in nations or economies that prefer socialism, even if these features will also have communist economies. Socialist economies are trying to provide a sense of equality of lifeAbout the style among citizens. Rather than having a small group of highly earnings of individuals or families in the economy, socialism tends to raise poorer taxpayers through government programs.

The ability to pay has an initial short -term benefits because it allows low -income taxpayers to maintain more money. This will increase consumption from this demographic group and stimulate the production process of goods and services in the local economy. However, there are disadvantages for this concept. For example, withdrawing money from taxpayers with high income-which tends to be owners of enterprises and employment manufacturers will be able to support the economy from their collective business events.