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The Tax System Types of Taxes

The Tax System Types of Taxes. There are three types of taxes Proportional Regressive Progressive. Proportional Taxes. Everybody pays exactly the same proportion of their income in taxes Ex: Everybody pays 15% of their income Also called a “flat tax”. Sales tax – 6.5% .

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The Tax System Types of Taxes

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  1. The Tax System Types of Taxes

  2. There are three types of taxes • Proportional • Regressive • Progressive

  3. Proportional Taxes • Everybody pays exactly the same proportion of their income in taxes • Ex: Everybody pays 15% of their income • Also called a “flat tax” • Sales tax – 6.5%

  4. Regressive Taxes • The regressive tax rate decreases the higher the income • Ex: The poorest pay 35% in taxes, while the richest pay only 10% • Accidentally regressive taxes

  5. Progressive Taxes • The progressive tax rate increases the higher the income • Ex: The poorest pay 10% taxes, while the richest pay 35% taxes

  6. Marginal Tax Rates • Marginal tax rate – the rate you pay on the next dollar you earn • The U.S. tax system is tiered • When you bump up to a new bracket, you are taxed ONLY at the rate on the money within that bracket.

  7. On a blank sheet of paper, answer the following prompt: • The Internal Revenue Service (the IRS) would like to reorganize the American tax code, and they have asked for your input. Which system – proportional, regressive, progressive, or a mix – would you recommend? Explain why. Consider how your system will affect different economic groups (the very poor, the poor, the middle class, the rich, and the very rich).

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