1. 2014′s Most & Least Fair State Tax Systems

2. Tax Structures Under the proportional taxes, each income group has the same percentage rate of tax to pay – 10% In the regressive tax structure, the lower income individuals pay a greater percentage of their income in taxes than do the upper income individuals In the progressive scenario, the lower income individuals pay a lower percentage of their income than do the upper income. As income increases, so does the percentage of taxes paid

3. Proportional Taxes  A proportional tax requires the same percentage from each person’s income  A sales tax is an example  This tax affects the less wealthy persons more heavily than it does the richer ones  The amount taxed on any item is the same dollar amount for each, but it represents a larger share of the less well-off person’s financial resources 9.75% Sales Tax

4. Proportional Sales Taxes can be Regressive on Individuals Poorer people tend to spend a greater %age of their income on basic living cost items – –Food, Clothing –Shelter, Transportation… in contrast to those at the higher income levels.

5. Proportional Sales Taxes, cont. The spending habits of two families with incomes of $50,000 and $75,000 may differ significantly. The basic necessities of life – bread, milk, and butter, for example – differ little in quantity purchased by a family of four at these income levels.

6. Example: Proportional Tax -- Regressive Effect Groceries for a family of 4 (2 teenagers) might cost $200/week A sales tax of 4.5% would be $9/wk Over 1 year, the sales tax on groceries would total $468 For a family with an income of $100,000/yr. =.468% of income For the same family (same eating habits) earning $50,000/yr., sales tax on groceries =.936% of income

7. Proportional Sales Taxes Tax the Wealthier, Less The family with the higher income level spends a lower percentage on the sales tax related to these items.

8. But Proportional Sales Taxes Tax The Less Wealthy, More The family with the lower income level spends a higher percentage on the sales tax related to these items.

10. Regressive Taxes  A regressive tax requires those with higher incomes pay lower percentages of their income.  Social security taxation system  At the beginning income levels all individuals pay 7.65% of their income in FICA tax  FICA taxes are not collected after one’s income reaches $68,400

11. Regressive Taxes, cont.  FICA* is a regressive tax.  An individual earning $68,400 would pay $5,232.60 each year in FICA taxes.  An individual earning twice that rate, or $136,800, would pay the same FICA tax amount or 3.825% - 1/2 the % of income that the $68,400 earner would pay!! *FICA - Federal Insurance Contributions Act

12. Progressive Taxes  Progressive taxes are those that increase as a percentage along with income  Federal income taxes are designed to be progressive

13. Tax Brackets – 2014 Taxable Income

14. Individual Taxes Paid Taxes as a Income % of Income Proportional Taxes 1$10,000$1,00010% 2$50,000$5,00010% 3$100,000$10,000 10% Regressive Taxes 1$10,000$5005% 2$50,000$2,0004% 3$100,000$3,0003% Progressive Taxes 1$10,000$3003% 2$50,000$2,0004% 3$100,000$5,0005% Illustration: Proportional, Regressive, & Progressive Taxes Examples of the 3 Tax Classifications

15. “ Good ” taxes are are generally considered to be progressive while “ Bad ” taxes are considered to be regressive.