SCENARIO 1: The tax structure described in this scenario is a flat tax. Both Mary and Caleb are paying the same amount of $18,000 in taxes, regardless of their income levels. A flat tax is a fixed rate tax where everyone pays the same percentage of their income. In this case, the tax rate is not explicitly provided, but it can be calculated as $18,000 divided by Mary's or Caleb's income (assuming they both pay the same rate), which would result in a tax rate of 40% for both of them.
SCENARIO 2: The tax structure represented in this scenario is a proportional tax. Both Kevin and Trey are paying 22% of their salary in income taxes. A proportional tax, also known as a flat tax or a single-rate tax, is a tax system where the tax rate is the same regardless of income level. In this case, both Kevin and Trey pay the same percentage of their income towards taxes, making it a proportional tax structure.
SCENARIO 3: The tax structure described in this scenario is a progressive tax. Martin and Lori are subjected to different tax rates based on their income levels. Martin pays 20% of his salary while Lori pays 26% of her salary. A progressive tax is a tax system where the tax rate increases as income increases. In this case, as Lori earns a higher salary than Martin, she falls into a higher tax bracket and is subject to a higher tax rate, making it a progressive tax structure.
For each of the following three scenarios, identify and explain the tax structure that is described. You must respond to all three scenarios. (6pts -- 2pts for each scenario)
SCENARIO 1: Mary makes $45,000 a year working as a manager at the local Home Depot. Caleb makes $84,000 working as an accountant at a local firm. Both will pay $18,000 in taxes this year. What tax structure does this scenario represent? Explain your answer.
SCENARIO 2: Kevin brings in $55,000 a year working in construction. Trey is a lawyer and makes $110,000 a year in salary. Both of them will pay 22% of their salary in income taxes. What tax structure does this represent? Explain your answer.
SCENARIO 3: Martin will make $45,000 in salary this year as a middle school science teacher. Lori will bring in $65,000 in salary this year as a physical therapist. Martin will have to pay 20% of his salary in income taxes and Lori will have to pay 26% of her salary in income taxes. What tax structure does this represent? Explain your answer.
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