The Tax System Types of Taxes

There are three types of taxes – Proportional – Regressive – Progressive

Proportional Taxes Everybody pays exactly the same proportion of their income in taxes Ex: Everybody pays 15% of their income Also called a “flat tax” Sales tax – 6.5%

Regressive Taxes The regressive tax rate decreases the higher the income Ex: The poorest pay 35% in taxes, while the richest pay only 10% Accidentally regressive taxes

Progressive Taxes The progressive tax rate increases the higher the income Ex: The poorest pay 10% taxes, while the richest pay 35% taxes

Marginal Tax Rates Marginal Tax RateSingleMarried/Filing Jointly 10%$0 - $8,700$0 - $17,400 15%$8,701 - $35,350$17,401 - $70,700 25%$35,351 - $85,650$70,701 - $142,700 28%$85,651 - $178,650$142,701 - $217,450 33%$178,651 - $388,350$217,451 - $388,350 35%Over $388,351 Marginal tax rate – the rate you pay on the next dollar you earn The U.S. tax system is tiered When you bump up to a new bracket, you are taxed ONLY at the rate on the money within that bracket.

On a blank sheet of paper, answer the following prompt: The Internal Revenue Service (the IRS) would like to reorganize the American tax code, and they have asked for your input. Which system – proportional, regressive, progressive, or a mix – would you recommend? Explain why. Consider how your system will affect different economic groups (the very poor, the poor, the middle class, the rich, and the very rich).