Are wealthy americans those persons who are in the

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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 percent? 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 1. Define a. proportional income tax b. progressive income tax c. regressive income tax Reviewing Facts and Concepts 2. What three federal taxes together account for approximately 92.3 EXHIBIT 14-6 Federal Individual Income Tax Categories Income group Income split point Group‘s share of total U.S. income Group‘s share of federal income taxes Average ag tax rate at Top 1% above $285,424 16.12% .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 Concepts 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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