Final answer:
A tax system where the tax rate remains constant regardless of income level is called a proportional tax. This is different from regressive or progressive tax systems where the tax burden shifts depending on the earned income. The correct answer to the question is c. proportional.
Step-by-step explanation:
If with the increase in income, the percentage of income collected as tax remains constant, the tax will be called proportional. This type of tax stipulates that everyone pays the same flat rate on their income, regardless of how much they earn. To illustrate, with a proportional tax rate of 10%, an individual earning $100,000 will pay $10,000 in taxes, while another individual earning $10,000 will pay $1,000 in taxes - both paying the same rate but significantly different amounts in dollar terms.
Contrastingly, a regressive tax system implies that higher income earners pay a lower share of their income in taxes compared to lower-income earners. A progressive tax system, however, implies that the tax rate increases as one's income increases, meaning higher income earners pay a higher percentage of their income in taxes than lower income earners. Lastly, a neutral tax does not exist in the typical lexicon of tax terminology.
The correct answer to the question is c. proportional.