Given the following tax structure
Taxpayer salary total tax
Mae 14,000 1260
Pedro. 52,000. ????
What is the minimum tax that Pedro should pay to make the tax structure vertically equitable with respect to the amount of tax paid?
This would result in what type of tax rate structure? Regressive or Progressive?
To be vertically equitable, Pedro must pay higher taxes (in dollars) as compared to Mae. In other words, for the tax structure to be vertically equitable, Pedro needs to pay $1 more than the amount of tax paid by Mae because of higher income earned by Pedro. Therefore, the minimum amount of tax that Pedro should pay would be $1,261 to make the tax structure vertically equitable with respect to the amount of tax paid.
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The current situation would result in a regressive tax structure. It is because as the amount of income has increased, the average tax rate has decreased. While Mae is required to pay a higher tax rate (1,260/14,000 = 9%) on his income, Pedro would be required to pay a lower tax rate on his higher income (1,261/52,000*100 = 2.425%) to make the tax structure vertically equitable.
Given the following tax structure Taxpayer salary total tax Mae 14,000 1260 Pedro. 52,000. ???? What...
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