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A tax where the rate rises as the amount taxed increases. a) Proportional b) Progressive c)...

A tax where the rate rises as the amount taxed increases.

a) Proportional
b) Progressive
c) Excise
d) Regressive

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Answer #1

a) is wrong. In this system, regardless of income the proportion of tax is the same. Marginal tax rate = average tax rate

b) is correct. Progressive tax is where as the income increases, a higher percentage of additional income is paid as taxes. Marginal tax is more than average tax rate. High income earners pay more than poor people. Thus as earnings increase, the amount taxed will increase and with it the rate of tax will increase as wealth increases.

c) is wrong. Excise taxes are fixed. They are charged on products.

d) is wrong. Regressive tax is where there is no correlation between earnings and tax. Tax is assessed as a percentage of value of assets owned.

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