Question

With a proportional tax, higher-income persons will pay?

Multiple Choice

a) the same amount of taxes as lower-income persons.

b) a bigger amount in taxes compared to lower-income persons.

c) a higher proportion of their income in taxes than lower-income persons.

d) a higher marginal tax rate as their incomes rise.

Answer 1

In a proportional tax system, higher-income individuals pay a larger total amount in taxes than lower-income individuals, because they are paying the same fixed percentage on a larger amount of income.

Step-by-step explanation:

With a proportional tax, higher-income persons will pay a bigger amount in taxes compared to lower-income persons. This is because a proportional tax is a flat percentage of income earned, irrespective of the level of income. Therefore, if the tax rate is 10%, someone earning $100,000 will pay $10,000, while another person earning $10,000 will pay only $1,000. Although it's the same tax rate for both individuals, the actual dollar amount paid in taxes is greater for the higher-income earner.