Unformatted text preview: id by different income groups. First, it is important
to define what we mean by “wealthy
Americans.” Are wealthy Americans those
persons who are in the top 1 percent of
income earners, or top 5 percent, or top 10
Second, it is important to define what
we mean by a “fair share” of taxes. For
example, is it unfair if wealthy Americans
pay only 5 percent of all federal income
taxes, but fair if they pay 20 percent?
Third, it is important to get some idea of
what wealthy Americans pay in taxes compared to what they earn in income.
Let’s compare tax data for people in different income groups (see Exhibit 14-6).
How does each income group’s share of
income compare to its share of taxes? Do
you notice a pattern with regard to the average tax rates for the different groups? After
studying the data, do you have an opinion
about whether or not the wealthy pay a fair
share of the total income tax? Defining Terms
a. proportional income
b. progressive income
c. regressive income tax Reviewing Facts and
2. What three federal taxes
together account for
approximately 92.3 EXHIBIT 14-6 Federal Individual Income Tax
group Income split
point Group‘s share of
total U.S. income Group‘s share
income taxes Average
at Top 1% above
.1 33.71% 27.25% Top 5% above
$126,525 30.55% 53.80% 22.95% Top 10% above
$ 92,663 41
41.77% 65.73% 20.51% Top 25% above
$ 56,401 64.
64.37% 83.90% 16.99% Top 50% above
$ 28,654 85.77% 96.50% 14.66% below
$ 28,654 14.23% 3.50% 3.21% Bottom
50% Source: Internal Revenue Service (2003). This exhibit compares the amount of total U.S. income earned to the
amount of taxes paid for by selected income groups. The “Income split
point” (second column) is simply a term for the amount of income a person had to earn to be in a particular group. For example, a person had to
earn at least $285,424 to be in the top 1% of earners. Note from the last
column, reading from the bottom up, that the more money a person
earns, the higher average tax rate the person pays. For how many
groups was the percentage of the total tax bill higher than the
percentage of total income? For which group was this percentage difference the greatest? percent of federal government tax revenues?
3. Which federal tax raises
the greatest tax revenue?
4. What percentage of the
year did the average taxpayer have to work in
2000 to pay all his or her
taxes? Critical Thinking more in taxes than a lowincome earner under a
regressive income tax.”
Do you agree or disagree?
Explain your answer. Applying Economic
6. Is a sales tax regressive,
proportional, or progressive? Explain your answer. 5. “It is possible for a highincome earner to pay
Section 1 Taxes 373 14 (364-389) EMC Chap 14 11/18/05 10:58 AM Page 374 Filing an Income Tax Return I f you haven’t already, you will
soon have to file an annual federal income tax return. Is it hard to
do? In most cases, it is not hard at
all. You have tak...
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This document was uploaded on 01/16/2014.
- Winter '14