Which of the Following Examples Illustrates a Regressive Income Tax

question 156

Multiple Choice

Which of the following examples illustrates a regressive income tax?

• A) I earn $500 and pay $50 in taxes; you earn $1,000 and pay $90 in taxes.
• B) I earn $500 and pay $50 in taxes; you earn $1,000 and pay $100 in taxes.
• C) I earn $500 and pay $50 in taxes; you earn $1,000 and pay $110 in taxes.
• D) I earn $500 and pay $50 in taxes; you earn $1,000 and pay $125 in taxes.

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Definitions:

Effective Tax Rate

The average percentage of income paid to the government in taxes, considering all deductions and credits.

Future Value

The value of a current asset at a specified date in the future based on an assumed rate of growth over time.

Deferral of Taxes

The postponement of taxes to a future period, commonly used in retirement savings plans and investment accounts.

Traditional Retirement Plan

A retirement savings plan that offers tax advantages to the saver, typically involving pre-tax contributions that grow tax-deferred until withdrawals begin at retirement.