Each of the following tax proposals has income as the tax
base. In a diagram with the tax base—income, ranging from
$0 to $50,000—on the horizontal axis and the taxes paid on
the vertical axis, draw the income tax for each of the following tax proposals. For an individual who earns $25,000, what
is the marginal tax rate under each proposal? What is the
average tax rate for that individual? Is the marginal tax rate
higher than, lower than, or equal to the average tax rate?
Accordingly, classify the tax as being proportional, progressive, or regressive.
a. All income is taxed at 20%.
b. All income up to $10,000 is tax-free. All income above
$10,000 is taxed at a constant rate of 20%.
c. All income between $0 and $10,000 is taxed at 10%. All
income between $10,000 and $20,000 is taxed at 20%. All
income higher than $20,000 is taxed at 30%.
d. Each individual who earns more than $10,000 pays a
lump-sum tax of $10,000. If the individual’s income is
less than $10,000, that individual pays in tax exactly what
his or her income is.