ACCT M50 PRINCIPLES OF INCOME TAXATION PRACTICE EXAM | FREE SOLVED ANSWERS
Yvonne earned $75,000 and pald $4,500 of income tax, Jasmine earned $43,000 and paid $3,000 of income tax. The tax rate structure they are subject to is:
Yvonne earned $75,000 and pald $4,500 of income tax, Jasmine earned $43,000 and paid $3,000 of income tax. The tax rate structure they are subject to is:
Multiple Choice
- a. Progressive.
- b. Proportional
- c. Regressive
- d. Recessive.
Answer: (a) Progressive
The tax rate structure is progressive.
Explanation:
A progressive tax system is one where the tax rate increases as the taxable income or wealth increases. In this scenario:
- Yvonne: Earned $75,000 and paid $4,500 in tax. Her effective tax rate is ($4,500 / $75,000) * 100% = 6%.
- Jasmine: Earned $43,000 and paid $3,000 in tax. Her effective tax rate is ($3,000 / $43,000) * 100% ≈ 6.98%.
Since Jasmine, with a lower income, has a higher effective tax rate than Yvonne, who has a higher income, this indicates that the tax burden is proportionally higher for lower earners, which is characteristic of a progressive tax system.
ACCT M50 PRINCIPLES OF INCOME TAXATION PRACTICE EXAM FREE SOLVED ANSWERS