1.07 Taxes and You

Suppose you live in a state with a regressive sales tax system. You earn $20,000 a year. You pay 5% sales tax on items bought from a local hardware store. What percentage of sales tax would a person who makes twice as much money as you pay for merchandise at the same hardware store?

5%

Which type of tax system has the same rate for all income levels?

Proportional

A state's sale tax is 8%. This places a higher burden on individuals with lower incomes. What type of tax system does this represent?

Regressive

Each of the following events result in a tax payment. Which is an example of an indirect tax?

Sam buys a necklace and earring set at a local jewelry store.

Suppose you live in a country with a proportional tax system. You make $20,000 a year and pay $5,000 in taxes. Your friend makes twice as much money as you. What amount can your friend expect to pay in taxes this year?

$10,000

Which of the following is a type of tax paid straight to the federal government?

Income Tax

Each of the following events result in a tax payment. Which is an example of a direct tax?

Javier owes money to the federal government based on job earnings.