Question

Which of the following represents an example of a progressive income tax?

A.Someone with an income of $20,000 pays $2,000 in taxes to the government, and a person with income of $30,000 pays $4,000 in taxes.

B. Someone with an income of $20,000 pays $2,000 in taxes to the government, and a person with income of $80,000 pays $7,000 in taxes.

C. Someone with an income of $20,000 pays $2,000 in taxes to the government, and a person with income of $40,000 pays $4,000 in taxes.

D.Someone with an income of $20,000 pays $2,000 in taxes to the government, and a person with income of $40,000 pays $4,000 in taxes.: this is a regressive tax, because the percentage tax on the higher income person is lower.

E.Someone with an income of $40,000 pays $2,000 in taxes to the government, and a person with income of $80,000 pays $4,000 in taxes.

  

F. All of the above are examples of a progressive tax.

   

G. Choices 1. and 4. (a. and d.) are examples of a progressive tax.

Part b:

A. We can probably not completely reduce poverty to zero. However, most people can avoid poverty by following responsible guidelines. One of the ways to help avoid poverty is to invest wisely. An important cause of the recent recession was that people did not invest wisely. Many of the people that found themselves with financial difficulties:

B. borrowed an irresponsibly large amount of money (for example, to purchase a house they couldn't afford), and did not save enough money for a rainy day.

  

C. borrowed money from a bank that was not insured by the FDIC.

  

D. rented a home instead of owning one. Owning a home is always more advantageous than renting one.

E. invested in mutual stock funds instead of real estate securities. Mutual stock funds performed better than real estate funds.

  

F. did all of the above.

Answer 1

A. Someone with an income of $20,000 pays $2,000 in taxes to the government, and a person with income of $30,000 pays $4,000 in taxes.

Progressive Tax: It implies that the rate of tax increases with an increase in income.

When income is 20,000 then tax is 2000 i.e. 2000/20,000 x 100 = 10%

When income is 30,000 then tax is 4000 i.e. 4000/30,000 x 100 = 13.33%