We review Adam Smith’s ideas of public finance and taxation in terms of moral philosophical methodology. In the existing literature Smith’s view of taxation is, in cases, inconsistent especially owing to the shortcomings of his economic theory. This paper presents that via his concepts of general equilibrium in price theory and equity in justice, Smith’s maxim of horizontal equality calls for the taxes of rent, interest, monopoly profits, and luxuries as optimal bases, with wages and net profits exempt from tax. Furthermore, the equity-based tax policy bears implications on the redistribution function of the modern state.