Ted Earned $150,000 During the Current Year

question 14

True/False

Ted earned $150,000 during the current year. He paid Alice, his former wife, $75,000 in alimony. Under these facts, the tax is paid by the person who benefits from the income rather than the person who earned the income.

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Definitions:

Proportional Taxation

A tax system where the tax rate is fixed and does not change with the income level of the taxpayer, implying everyone pays the same percentage of their income in taxes.

Regressive Taxation

A tax system where the tax rate decreases as the taxable amount increases, meaning lower-income individuals pay a higher percentage of their income compared to higher-income earners.

Tax Incidence

The distribution of tax burden among taxpayers; who ultimately pays the tax.

Marginal Tax Rate

The percentage of each additional dollar of income that goes to the tax.