Final answer:
The three basic types of tax structures are progressive, proportional, and regressive. Progressive taxes increase with higher income, proportional taxes apply the same rate to all incomes, and regressive taxes take a larger percentage from lower incomes. These structures significantly impact how different income levels are taxed in the U.S.
Step-by-step explanation:
Types of Basic Tax Structures
The three types of basic tax structures used in determining a tax are progressive, proportional, and regressive. Option 1: Flat, Progressive, Regressive is the correct selection.
- Progressive taxes: As income increases, the tax rate also increases. This means higher-income earners pay a larger percentage of their income in taxes, which is the principle used by the U.S. federal income tax system.
- Proportional taxes (also known as flat taxes): The tax rate is the same for everyone, regardless of income. An example would be a flat tax of 10% that applies to all income levels. For someone earning $100,000, the tax would be $10,000; for someone earning $10,000, the tax would still be 10%, or $1,000, which could represent a heavier burden relative to their income.
- Regressive taxes: The tax rate decreases as the income increases, meaning lower-income earners pay a higher percentage of their income compared to higher-income earners. An example of a regressive tax is a sales tax, where the amount of tax remains the same regardless of the buyer's income.
Major revenue sources for the U.S. federal budget include the individual income tax and the FICA tax, which funds Social Security and Medicare. Other sources include excise taxes, gift taxes, customs duties, and user fees.