A taxpayer who earns US $50,000 during the year and pays a 15% tax rate on the first US$30,000 of income and a 30% tax rate on all earnings over US $30,000 has a(n):
Answer(s): C
The average tax rate is calculated using the weighted-average method. The weight assigned to each rate is determined by the proportion of taxable income subject to it. The average tax rate is 21% [(US $30,000 $50,000) x _15 + $20,000 $50,000) x .30].
A tax is regressive if:
Answer(s): B
With a regressive tax, the percentage paid in taxes decreases as income increases. For example, excise taxes and payroll taxes are both regressive taxes. An excise to is regressive because its burden falls disproportionally on lower-income persons. As personal income increases, percentage of income paid declines because an excise tax is a flat amount per quantity of the good or service purchased.
General sales taxes tend to be regressive with respect to income because:
Answer(s): A
A sales tax is regressive with respect to income even though the rate is the same regardless of the buyer's income. The reason is that a greater percentage of a low-income individual's income is exposed to the tax. A higher-income individual should be able to save more and therefore shield a greater percentage of his/her income from the tax.
Under a value-added taxing system:
A value-added tax is based on consumption. The tax is levied on the value added to goods by each business unit in the production and distribution chain. It is the consumer who ultimately bears the incidence of the tax because businesses subject to the tax will raise prices to offset the operating cost of the tax.
A nation has a progressive tax structure with income tax brackets that are not indexed to inflation. An individual taxpayer experiences an income increase just equal to the general inflation rate moves into a higher tax bracket. The individual taxpayer will then experience -List A- nominal taxes payable and- List B- real taxes payable.
Because the taxpayer's income increase equal to the general inflation rate, no real no real increase in income has occurred. However, some or all of the increase is subject to a higher tax rate. Accordingly the taxpayer will experience an increase in both nominal taxes payable and in real taxes payable.
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