1. The three tax structures --- progressive, proportional, and regressive . The
ID: 1114713 • Letter: 1
Question
1. The three tax structures --- progressive, proportional, and regressive.
The classification of tax structures is based on the behavior of the average tax rate (ATR) or the proportion of income paid in taxes. The following table shows three tax schedules. Calculate the ATR.
Tax base using Tx paid Tx paid Tx paid
taxable income tax A ATR tax B ATR tax C ATR
a. $10,000 $ 650 ____% $ 500 ____% $1,000 ____%
b. $20,000 $ 850 ____% $1,000 ____% $3,000 ____%
c. $30,000 $ 950 ____% $1,500 ____% $6,000 ____%
d. $40,000 $1,050 ____% $2,000 ____% $9,500 ____%
e. Tax schedule A indicates a _________________________ tax structure,
because the ATR _________________________ as income increases.
f. Tax schedule B indicates a _________________________ tax structure,
because the ATR _________________________ as income increases.
g. Tax schedule C indicates a _________________________ tax structure,
because the ATR _________________________ as income increases.
Explanation / Answer
Average tax rate (ATR) = Tax paid / Taxable income
(a) to (d) - As follows
(e)
Tax schedule A indicates Regressive tax structure, because ATR decreases as income increases.
(f)
Tax schedule B indicates Proportional tax structure, because ATR is constant as income increases.
(g)
Tax schedule C indicates Progressive tax structure, because ATR increases as income increases.
Tax Base ($) Tax paid A ($) ATR (A) Tax paid B ($) ATR (B) Tax paid C ($) ATR (C) a 10,000 650 6.50% 500 5.00% 1,000 10.00% b 20,000 850 4.25% 1,000 5.00% 3,000 15.00% c 30,000 950 3.17% 1,500 5.00% 6,000 20.00% d 40,000 1,050 2.63% 2,000 5.00% 9,500 23.75%Related Questions
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