Question

Household A earns $50,000 a year and pays $10,000 in taxes. Household B earns $200,000 a year and pays $50,000 in taxes. The tax system described here is:______

Answer 1

Answer: d. progressive

Explanation:

In a Progressive tax regime, taxes are paid based on the taxable amount of the taxpayer. The higher the taxable amount, the higher the tax rate paid.

In this scenario, the tax rates are;

Household A = 10,000/50,000 = 20%

Household B = 50,000/200,000 = 25%

Household B is paying a higher tax rate because they earn more making this a progressive regime.