Question

A new tax is imposed on a scale in which an individual with an income of $20,000 pays $1,000 of tax, a person with an income of $30,000 pays $3,000 of tax, a person with an income of $40,000 pays $6,000 of tax, and so forth.

a. What is each person’s tax rate?

b. Is this regressive, proportional, progressive?

Suppose there’s no tax on the first $25,000 of income, but a 25% tax on earnings between $25,000 – $75,000 & a 30% tax on income between $75,000 – $125,000. Anything above $125,000 is taxed at 35%.

c. If your income is $150,000…calculate taxes?

d. Is this regressive, proportional, progressive?

Answer 1

a) Ans:

First person's  tax rate is 5%.

Second person's tax rate is 10%.

Third person's tax rate is 15%.

Explanation:

Tax rate = (Total tax paid/ Taxable income ) *100

b) Ans: This is progressive.

Explanation:

When the tax  rate increases with an increase in taxable income , then that tax is progressive.

c) Ans: Total tax amount is $36,250

Explanation:

Tax amount from the income of $0 to $25,000 = $0

Tax amount from the income of $25,000 to $75,000 = 25% of $50,000 =$12,500

Tax amount from the income of $75,000 to $125,000 = 30% of 50,000 =$15000

Tax amount from the income of $125,000 to $150,000 = 35% of $25,000 =$8,750

Total tax Amount =$12500 + $15000 +$8750

=$36,250

d) Ans: This is progressive.

Explanation;

In the above scenario, tax rate increases with an increase in taxable income. So this is a progressive tax.