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Chapter 30: Problem 7

The social security tax is \(6.2 \%\) on employees' income earned below \(\$ 113,000\). Is this tax progressive, regressive or proportional?

Short Answer

Expert verified
The social security tax system is proportional for incomes earned below $113,000, as the tax rate remains at a constant 6.2% regardless of income level.

Step by step solution

01

Examine the Tax Rate

The social security tax is a flat rate of 6.2% on income earned below \(113,000. No matter the income level, as long as it's below \)113,000, the tax rate remains at 6.2%.
02

Compare to Tax System Definitions

Now that we know the social security tax rate remains the same (6.2%) for incomes earned below $113,000, we can compare this to the definitions of progressive, regressive, and proportional tax systems. - Progressive tax: The tax rate increases as income levels increase. - Regressive tax: The tax rate decreases as income levels increase. - Proportional tax: The tax rate remains constant regardless of income level. Since the tax rate remains constant at 6.2%, we can conclude that:
03

Determine the Tax System for Social Security Tax

The social security tax system is proportional for incomes earned below $113,000, which means the tax rate remains at a constant 6.2% regardless of income level.

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