The tax as progressive, regressive or proportional, when− All income is taxed at 20% When all income up to $10,000 is tax free while all income above $10,000 is taxed at a constant rate of 20% All income from $0 to $10,000 is taxed at 10%, Income between $10,000 to $20,000 at 20% and all income above $20,000 is taxed at 30% Each individual who earns more than $10,000 pays a lump sum tax of $10,000 while each individual who earns below $10,000 pays his entire income as tax. The policy that causes the worst incentive problems. Concept Introduction: Marginal Tax Rate: It is the percentage of tax calculated on an extra unit of income earned. Progressive Tax: A type of tax in which as the income increases, the tax rate also increases. Proportional Tax: A type of tax in which as the income increase, the tax rate remains the same. Regressive Tax: A type of tax in which as the income increases, the tax rate decreases.

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Chapter 7, Problem 13P

To determine

The tax as progressive, regressive or proportional, when−

All income is taxed at 20%

When all income up to $10,000 is tax free while all income above $10,000 is taxed at a constant rate of 20%

All income from $0 to $10,000 is taxed at 10%, Income between $10,000 to $20,000 at 20% and all income above $20,000 is taxed at 30%

Each individual who earns more than $10,000 pays a lump sum tax of $10,000 while each individual who earns below $10,000 pays his entire income as tax.

The policy that causes the worst incentive problems.

Concept Introduction:

Marginal Tax Rate:

It is the percentage of tax calculated on an extra unit of income earned.

Progressive Tax:

A type of tax in which as the income increases, the tax rate also increases.

Proportional Tax:

A type of tax in which as the income increase, the tax rate remains the same.

Regressive Tax:

A type of tax in which as the income increases, the tax rate decreases.

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