Chapter 8: Problem 250

Precisely what is meant by a progressive tax? A regressive tax? A proportional tax? Give an example for each.

Short Answer

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A progressive tax is a tax system where the tax rate increases as taxable income increases, such as the federal income tax in the United States with tax brackets ranging from 10% to 37%. A regressive tax is a tax system where the tax rate decreases as taxable income increases, disproportionately burdening lower-income individuals, such as a fixed sales tax on basic goods. A proportional tax, or flat tax, is a tax system where all taxpayers pay the same percentage of their income in taxes, regardless of their income level, such as a country levying a constant 15% tax rate on all income for all residents.

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Progressive Tax

A progressive tax is a tax system where the tax rate increases as the taxable income increases. In other words, the more someone earns, the higher their tax rate. This tax system generally aims to distribute wealth from high-income earners to low-income earners. Example: The federal income tax in the United States is a progressive tax, where the tax brackets range from 10% for the lowest earners up to 37% for the highest earners.

Regressive Tax

A regressive tax is a tax system where the tax rate decreases as the taxable income increases. In this system, low-income earners pay a higher percentage of their income in taxes compared to high-income earners. Regressive taxes tend to disproportionately burden lower-income individuals. Example: A sales tax on basic goods is an example of a regressive tax. Since sales tax is generally a fixed percentage on items, lower-income individuals end up paying a higher percentage of their income on these goods. A 10% sales tax would take a larger percentage of income from a person earning \(20,000 per year compared to someone earning \)100,000 per year.

Proportional Tax

A proportional tax, also known as a flat tax, is a tax system where all taxpayers pay the same percentage of their income in taxes, regardless of their income level. This tax structure treats everyone equally, but it may not be deemed as "fair" by some, as it does not take into consideration the differences in individuals' ability to pay taxes. Example: Suppose Country X levies a 15% tax rate on all income for all residents. In this case, an individual earning \(30,000 would pay \)4,500 in taxes, while someone earning \(80,000 would pay \)12,000 in taxes. The tax rate remains constant at 15% for both income levels.

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Precisely what is meant by a progressive tax? A regressive tax? A proportional tax? Give an example for each.

Short Answer

Step by step solution

Progressive Tax

Regressive Tax

Proportional Tax

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