Question

For each of the following three scenarios, identify and explain the tax structure that is described. You must respond to all

three scenarios. (6pts-2pts for each scenario)
SCENARIO 1:
Mary makes $45,000 a year working as a manager at the local Home Depot. Caleb makes $84,000 working as an accountant at
a local firm. Both will pay $18,000 in taxes this year. What tax structure does this scenario represent? Explain your answer.
SCENARIO 2:
Kevin brings in $55,000 a year working in construction. Trey is a lawyer and makes $110,000 a year in salary. Both of them
will pay 22% of their salary in income taxes. What tax structure does this represent? Explain your answer.
SCENARIO 3:
Martin will make $45,000 in salary this year as a middle school science teacher. Lori will bring in $65,000 in salary this year
as a physical therapist. Martin will have to pay 20% of his salary in income taxes and Lori will have to pay 26% of her salary
in income taxes. What tax structure does this represent? Explain your answer.

Answer 1

Scenario 1 illustrates a proportional (flat) tax system with equal tax amounts, Scenario 2 also shows a proportional system with taxes as a flat percentage of income, while Scenario 3 demonstrates a progressive tax system with higher earners paying higher percentage rates.

Step-by-step explanation:

For each scenario, we'll identify and explain the type of tax structure described.

Scenario 1

Mary and Caleb have different incomes but pay the same amount in taxes. This represents a proportional tax system, also known as a flat tax. In a flat tax system, all taxpayers pay the same absolute amount or same percentage of income, regardless of their earnings.

Scenario 2

Kevin and Trey pay a fixed percentage of their income as tax. This is characteristic of a proportional tax system, where the tax rate is the same for all income levels, meaning each person pays taxes at the same percentage rate of their income.

Scenario 3

Martin and Lori pay different percentages of their income based on what they earn. This is an example of a progressive tax system, where the tax rate increases as the taxable amount increases. People with higher incomes are taxed at higher percentage rates.

Answer 2

Scenario 1 embodies a proportional tax structure as both individuals pay the same amount in taxes. Scenario 2 also represents a proportional tax as the individuals pay the same percentage of their income. Scenario 3 represents a progressive tax structure since the higher earner pays a larger percentage of their income in taxes.

Step-by-step explanation:

In the three given scenarios, individuals with different incomes face different tax structures. Here is an analysis of each scenario:

SCENARIO 1:

Mary and Caleb have different incomes but both pay the same amount in taxes. This represents a proportional tax structure, also known as a flat tax, where every taxpayer pays the same amount or the same percentage of their income, regardless of their earnings level.

SCENARIO 2:

Kevin and Trey pay a fixed percentage of their income as taxes. This also indicates a proportional tax structure or a flat tax rate, where the rate is consistent across different income levels.

SCENARIO 3:

Martin and Lori pay different percentages of their incomes as taxes, with the higher earner paying a higher percentage. This illustrates a progressive tax structure, where taxpayers with higher incomes are taxed at higher rates compared to those with lower incomes.