You work for the Council of Economic Advisers, providing economic advice to the White House. The president wants to overhaul the income tax system and asks for your advice. Suppose that the current income tax system consists of you work for the Council of Economic Advisers, providing economic advice to the White House. The president wants to overhaul the income tax system and asks for your advice. Suppose that the current income tax system consists of a proportional tax system consists of a proportional tax system of 10% on all income and that there is one person in the country who earns $110 million; everyone else earns less than $ 100 million. The president proposes a tax cut targeted at the very rich so that the new tax system would consist of a proportional tax of 10% on all income up to $100 million and a tax rate of 0%(no tax) on income above $100 million. You are asked to evaluate this tax proposal by answering the following questions below, 3 a and 3 b.
a. Based on the information above, is this tax system the President is proposing progressive, regressive, or proportional? Why? Explain Based on the information above the president is proposing a regressive tax. As taxable income increases, the tax rate decreases. A regressive tax system is one in which the higher class pay less in taxes than the middle class who pay less in taxes than the lower class. This means that the lower class pays the most in taxes. In this example above those that earn more are supposed to be taxed less.
b. Generally, in your opinion would this taxl system create more or fewer tax revenues for the government, other things equal? Do you think this tax system the President is proposing more or less efficient and fair than the current tax system here in this problem? Explain.
