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(11)[LO3] Describe the three different tax rates discussed in the chapter and how taxpayers might use them.TaxTaxableIncome= )()(IncomeOldTaxableIncomeNewTaxablexOldTotalTaxNewTotalTa--TotalTax
Effective Tax Rate = eTotalIncom(12)[LO3] Which is a more appropriate tax rate to use to compare taxpayers’ tax burdens – the average or the effective tax rate? Why?(13)[LO3] Describe the differences between a proportional, progressive, and regressive tax rate structure.A proportional (flat) tax rate structure imposes a constant tax rate throughout the tax base. In other words, as the tax base increases, the taxes paid increases, but the marginal tax rate remains constant. Because the marginal tax rate is constant across all levels of the tax base, the average tax rate remains constant across the tax base and always equals the marginal tax rate. Common examples of proportional taxes include sales taxes and excise taxes (i.e., taxes based on quantity such as gallons of gas purchased). A progressive tax rate structure imposes an increasing marginal tax rate as the tax base increases. In other words, as the tax base increases, both the marginal tax rate and the taxes paid increase. Common examples of progressive tax rate structures include federal and state income taxes and federal estate and gift taxes. A regressive tax rate structure imposes a decreasing marginal tax rate as the tax base increases. In other words, as the tax base increases, the taxes paid increases, but the marginal tax rate decreases. Regressive tax rate structures are not common. In the United States, the Social Security tax and the federal employment tax employ a regressive tax rate structure. However, there are other regressive taxes when the tax is viewed in terms of effective tax rates.