Question

In a certain jurisdiction, John who is earning $35,000 currently pays a flat percentage of 15% in income tax. The tax authorities suggest a change to a progressive income tax system, where the rules for taxation are as follows: 1. Charging 10% on a person's income up to $20,000,

Answer 1

Under the proposed progressive tax system, John would pay a 10% tax on the first $20,000 of his income and an assumed 15% on the remaining $15,000, leading to a total tax of $4,250, less than the $5,250 he currently pays with a flat tax rate of 15%.

Step-by-step explanation:

When it comes to the progressive tax system, individuals with higher incomes are taxed at higher marginal tax rates. Under the suggested progressive income tax scenario for John, we would calculate his taxes by applying a 10% tax rate on the first $20,000 of his income, and then a higher tax rate on the remaining income above $20,000. Because the actual rates for the income above $20,000 aren't specified in the question, let's consider for simplicity that the rate remains at 15%.

Here's a breakdown of how that would look:

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These changes would result in John paying more than his current flat 15% tax of his entire $35,000 income, which amounts to $5,250. Therefore, the progressive system would benefit him by decreasing his total tax liability.

To summarize, under the flat tax rate of 15%, John would pay $5,250. Under the proposed progressive tax rates, he would pay an estimated $4,250, making the progressive system more favorable for him financially.