Final answer:
Taxation in the United States can be classified into three types: proportional, regressive, and progressive taxes, each with a distinctive impact based on the taxpayer's income.
Step-by-step explanation:
Types of Taxes and Their Descriptions
In the realm of taxation, there are three primary types of taxes:
- Proportional tax: This is a tax system where everyone pays the same flat percentage of their income, no matter how much they earn. An example is everyone paying a 10% tax rate; so, someone earning $100,000 would pay $10,000 in taxes, and another earning $10,000 would pay $1,000.
- Regressive tax: Under this system, people with higher incomes pay a smaller percentage of their income in tax, which places a heavier burden on those with lower incomes.
- Progressive tax: This tax structure ensures that individuals with higher incomes pay a higher percentage of their income in taxes than those with lower incomes, making the tax burden more equitable based on the ability to pay.
Major revenue sources for the U.S. federal budget include the individual income tax and the FICA tax, which funds Social Security and Medicare.