Question

Assume you pay a tax of $4,000 on a taxable income of $24,000. If your taxable income were $30,000, your tax payment would be $5,000. This suggests that the tax is___________

Answer 1

Answer:

The answer is "Fix/Proportional"

Explanation:

The tax is $4000 on taxable income of $24,000, which results in tax rate of 4000/24000=16.67%.Similarly, the tax is $5000 on taxable income of $30,000, which again results in tax rate of 5000/30,000=16.67%.

Tax rate is same for both brackets of income and hence it can be concluded that proportional tax system is used in given scenario. In proportional tax system, a taxpayer pay a fix percentage of its income as tax, irrespective of the fact that whether its income is more or less.

Fix tax rate is used in proportional tax system, which is also evident in given scenario.

The answer is "Fix/Proportional"