1. Taxes in the kingdom of Rodos Imagine that while cleaning out your great-grandfather's attic, you find a rucksack containing a journal and a sheaf of papers. Your great-grandfather, a noted entrepreneur and businessman, was also an accomplished amateur explorer. The journal, which appears to be written in your great- grandfather's hand, is a diary describing a series of visits to a small uncharted island called Rodos, in the northern Atlantic during the late 1800s. The journal and papers contain notes made during his conversations with Valdimar, king of Rodos, when they discussed the kingdom's business and economic conditions. Notes February 1, 1878 Background on the Kingdom and Economy of Rodos Rodos is a small agraran island Kingdom. Most Rodosian citizens live in small towns or in rural areas, King Valdimar and his royal court, on the other hand, live in the country's single, geographically centralized city King Valdimar, an enlightened ruler, wants to create an economy that improves Rodosians' standard of living and quality of life. He is also concerned with being as far as he can to cach citizen. The king has vast property holdings, but he does allow his citizens to own real and personal property, which can be used to generate the income to improve their standard of living and to pay their taxes, Tax revenues are used to provide for the island's defense and general services, such as postal system and the construction and maintenance of roads, bridges, and similar structures financial markets are rudimentary but effective Citizens and businesses with O Notes --February 1, 1878 Background on the Kingdom and Economy of Rodos Rodos is a small agrarian island kingdom. Most Rodosian citizens live in small towns or in rural areas. King Valdimar and his royal court, on the other hand, live in the country's single, geographically centralized city. King Valdimar, an enlightened ruler, wants to create an economy that improves Rodosians' standard of living and quality of life. He is also concerned with being as fair as he can to each citizen. The king has vast property holdings, but he does allow his citizens to own real and personal property, which can be used to generate the income to improve their standard of living and to pay their taxes. Tax revenues are used to provide for the island's defense and general services, such as a postal system and the construction and maintenance of roads, bridges, and similar structures. Financial markets are rudimentary but effective Citizens and businesses with more income than they require may deposit their funds into banks, who in tum may lend these funds to qualified borrowers. Rodos's equity markets are more constrained; owners are not allowed to sell more than 33% ownership of their company. So, though equity markets exist, there aren't many companies nor large numbers of shares bought and sold. Selected Provisions of the Rodosian Tax Code King Valdimar's current tax regime, both personal and corporate, is intended to be fair to everyone. The personal tax assesses the same tax -1,500 sodors (SR) per year-on each person, regardless of circumstance (rich or poor) or station (member of court, businessman, craftsman, or fisherman) alita O BE 99. Selected Provisions of the Rodosian Tax Code King Valdimar's current tax regime, both personal and corporate, is intended to be fair to everyone. The personal tax assesses the same tax-1,500 sodors (SR) per year-on each person, regardless of circumstance (rich or poor) or station (member of court, businessman, craftsman, or fisherman). The taxable income of all businesses-regardless of form (proprietorship, partnership, or corporation) - is subject to a 15% tax rate. Neither interest on borrowed funds nor dividends on outstanding shares are allowed to be paid using pre-tax income. Normal operating expenses, however, are tax-deductible s you read through the journal notes, you decide to take the rucksack to your finance class tomorrow to axes on decision making. However, to ensure that you are ready for this discussion, you've prepared and questions to be addressed. (Hint: For a brief reminder of relevant terms, click on the Definitions tab. Also, Rodosian with your own--particularly when attempting to predict future behaviors.) Term Disposable income Definitions Description The income that remains after the deduction of taxes and other mandatory balance is available for spending or saving as desired. Elt 99 No o Definitions Term Description Disposable income The income that remains after the deduction of taxes and other mandatory charges. This balance is available for spending or saving as desired. Excise tax This tax, which is levied on the consumption of certain products, is frequently included in the price of the product Luxury tax A tax levied on products or services that are deemed to be unnecessary, excessive, or nonessential to a normal standard of living Flat tax system Also called a proportional tax system, this scheme requires each taxpayer to pay the same tax rate. An example of a flat rate is a sales tax Progressive tax system This tax scheme imposes lower tax rates on less affluent taxpayers and higher tax rates on wealthier taxpayers. Regressive tax system This scheme requires each taxpayer to pay the same dollar amount regardless of income. An example of a regressive tax is a user fee for a bridge or toll road Sintax This tax is levied on products or services that the government perceives as vice. This tax, which also generates additional government revenue, is intended to discourage the consumption of these goods or services without making their illegat. 1. What general observations can be made regarding tax systems in general and the Rodosian tax code? A In general, there are three different types of tax wystem progressive, regressive, and that tax systems. The existing Modasan witam individual (personal) taxpayers an example of a system. One benefit of the existing systems that it mcreases the tobus because every citizen pays taxes, as a result, very taxpayer should care about how King Valdimar spends his twee the wealth or income of an individual taxpayer decreases the proportion of bus or her income or with spent on the In contrast, the ing system imposed on businesses is an example of stom. A benefit of this arrangementet O i > N inance in Action - Taxes Regressive tax system Sin tax on wealthier taxpayers. This scheme requires each taxpayer to pay the same dollar amount regardless of income. An example of a regressive tax is a user fee for a bridge or toll road. This tax is levied on products or services that the government perceives as vices. This tax, which also generates additional government revenue, is intended to discourage the consumption of these goods or services without making their use illegal 1. What general observations can be made regarding tax systems in general and the Rodosian tax code? A. In general, there are three different types of tax systems: progressive, regressive, and flat tax systems. The existing Rodosion system imposed on individual (personal taxpayers is an example of a system. One benefit of the existing system is that it increases the kingdom's tax base because every citizen pays taxes, as a rer payer should care about how King Valdimar spends his tax revenue. However, as the wealth or income of an individual taxpayer de portion of his or her income or wealth spent on taxes B. In contrast, the existing system imposed on busir regressive ample of a system. A benefit of this arrangement is that alt business organizations regardless of income or a pay the same progressive 11. How does the current tax system affect the decisions, behaviors, and condition of an individual Rodosian citizen and/or business? A In general, taxes are classified as and both an individual's disposable income and a business's after tax profits B. An advantage of the existing personal tax requirements that it allows an individual Rodosian to keep of his or her income as his or het total income increases. The requirement of a constant annual tax payment of SR1,500 means that as his or her annual income increases from SR30,000 per year to SR50,000, the proportion of his or her income lost to taxes decreases from type of tax arrangement should be expected to the average individual Rodosian to improve his or her income and quality of the C. A second advantage of Rodos's existing personal tax arrangement is it , which makes it expensive to comply with the requirement. Everything else bring equal, this characteristic tends to actes desposable income D. Smilarly, an advantage of the current business tax requirement is that it is idential for all business organisations According to this arrangement siness organization will be able to retain for every pre tax sodor med. From these after tak profits, will then py to o 99 and . What general observations can be made regarding tax systems in general and the Rodosian tax code? In general, there are three different types of tax systems: progressive, regressive, and flat tax systems. The existing Rodosian system imposed on individual (personal) taxpayers is an example of a system. One benefit of the existing system is that it increases the kingdom's tax base because every citizen pays taxes; as a result, every taxpayer should care about how King Valdimar spends his tax revenue. However, as the wealth or income of an individual taxpayer decreases, the proportion of his or her income or wealth spent on taxes B. In contrast, the existing system imposed on businesses is an example of a system. A benefit of this business organizations regardless of income or asset holdings-pay the same remains constant decreases II. How does the current tax system affect the decisions, behaviors, and condition of an individual Rodosian increases A. In general, taxes are classified as both an individual's disposable income and a (profits. B. An advantage of the existing personal tax requirement that it allows an individual Rodosian to keep of his or her income as his or her total income increases. The requirement of a constant annual tax payment of SR1,500 means that as his or her annual income increases from SR30,000 per year to SR50,000, the proportion of his or her income lost to taxes decreases from to In general, this type of tax arrangement should be expected to the average individual Rodosian to improve his or her income and quality of life. C. A second advantage of Rodos's existing personal tax arrangement is its , which makes it expensive to comply with the requirement. Everything else being equal, this characteristic tends to acturen's disposable income. D. Similarly, an advantage of the current business tax requirement is that it is identical for all business organizations. According to this arrangement, business organization will be able to retain for every pre tax sodor earned from these after tax profits, it will then pay any RE No 99 o What general observations can be made regarding tax systems in general and the Rodosian tax code? In general, there are three different types of tax systems: progressive, regressive, and flat tax systems. The existing Rodosion system imposed on individual (personal) taxpayers is an example of a system. One benefit of the existing system is that it increases the kingdom's tax base because every citizen pays taxes; as a result, every taxpayer should care about how King Valdimar spends his tax revenue. However, as the wealth or income of an individual taxpayer decreases, the proportion of his or her income or wealth spent on taxes B. In contrast, the existing system imposed on businesses is an example of a system. A benefit of this arrangement is that all business organizations-regardless of income or asset holdings--pay the sa regressive II. How does the current tax system affect the decisions, behaviors, a flat of an individual Rodosian citizen and/or business? A. In general, taxes are classified as and al's disposable income and a business's after-tax profits. progressive B. An advantage of the existing personal tax requirement is that it allows an bian to keep of his or her income as his or her total income increases. The requirement of a constant annual tax payment of SR1,500 means that as his or her annual income increases from SR30,000 per year to SR50,000, the proportion of his or her income lost to taxes decreases from to In general, this type of tax arrangement should be expected to the average individual Rodosian to improve his or her income and quality of life C. A second advantage of Rodos's existing personal tax arrangement is its which makes it expensive to comply with the requirement. Everything else being equal, this characteristic tends to acturen's disposable income D. Similarly, an advantage of the current business tax requirement is that it is identical for all business organizations. According to this arrangement, business organization will be able to retain for every pre tax odor earned from these after tax profits, it will then pay any de O RI 99 1. What general observations can be made regarding tax systems in general and the Rodosian tax code? A. In general, there are three different types of tax systems: progressive, regressive, and flat tax systems. The existing Rodosian system imposed on individual (personal) taxpayers is an example of a system. One benefit of the existing system is that it increases the kingdom's tax base because every citizen pays taxes, as a result, every taxpayer should care about how King Valdimar spends his tax revenue. However, as the wealth or income of an individual taxpayer decreases, the proportion of his or her income or wealth spent on taxes B. In contrast, the existing system imposed on businesses is an example of a system. A benefit of this arrangement is that all business organizations-regardless of income or asset holdings-pay the same 11. How does the current tax system affect the decisions, behaviors, and tax rate individual Rodosian citizen and/or business? A. In general, taxes are cassified as Y and both tax obligation sposable income and a business after tax profits B. advantage of the existing personal tax requirement is that it allows an individual Rodosian to keep of his or her income as his or her total income increases. The requirement of a constant annual tax payment of SR1,500 means that as his or her annual income increases from SR30,000 per year to SR50,000, the proportion of his or her income lost to taxes decreases from to In general, this type of tax arrangement should be expected to w the average individual Rodosian to improve his or her income and quality of life C. A second advantage of Rodos's existing personal tax arrangement is which makes it expensive to comply with the requirement. Everything else being equal, this characteristic tends to a citizen's disposable income 1. Similarly, an advantage of the current business tax requirement is that it is identical for all business organizations. According to this arrangement, business organization will be able to retain for every pre tax odor earned. From these after tax profits, it will then pay any hold. 0 PRAE 99 N 0 Ur his or her income or wealth spent on taxes B. In contrast, the existing system imposed on businesses is an example of a system. A benefit of this arrangement is that all business organizations-regardless of income or asset holdings--pay the same 11. How does the current tax system affect the decisions, behaviors, and condition of an individual Rodosian citizen and/or business? A. In general, taxes are classified as and both an individual's disposable income and a business's after-tax profits. 3. An advantage of the existing perse ement is that it allows an individual Rodosian to keep of his or her income as his or her total income increases. The requiremer an expense annual tax payment of SR1,500 means that as his or her annual income increases from SR30,000 per year to SR50,000, a revenue of his or her income lost to taxes decreases from to . In general this type of tax arrangement should be expected to the average individual Rodosian to improve his or her income and quality of life. C. A second advantage of Rodos's existing personal tax arrangement is its , which makes it expensive to comply with the requirement. Everything else being equal, this characteristic tends to a citizen's disposable income. D. Similarly, an advantage of the current business tax requirement is that it is identical for all business organizations. According to this arrangement a business organization will be able to retain for every pre-tax sodor earned. From these after-tax profits, it will then pay any owed on its borrowed capital and any to its shareholders. Given these provisions, the current system the use of one form of financing (debt versus equity) over the other. This is because the arrangement allows for the tax deductibility of financing The heat of papers accompanying the journal describes several potential revisions to the Rodosian personal and business tax code, induding replacing the existing system with a progressive tax system, the assessment of different luxury and sin taxes, and/or modifications of the provisions of the current system. Two of the specific proposals include the following: Policy Proposal 1: Replace the existing system with a progressive tax system that would tax business and individuals, using these schedules BusineNN Tax Rates ** business organizations-regardless of income or asset olingssyteme II. How does the current tax system affect the decisions, behaviors, and condition of an individual Rodosian citizen and/or business? A In general, taxes are classified as and both an individual's disposable income and a business's after-tax profits B. An advantage of the existing personal tax requirement is an individual Rodosian to keep of his or her income as his or her total decrease income increases. The requirement of a constant annual of SR1,500 means that as his or her annual income increases from SR30,000 per year to SR50,000, the proportion of his or increase pst to taxes decreases from to In general, this type of tax arrangement should be expected to troverage individual Rodosian to improve his or her income and quality of life. C. A second advantage of Rodos's existing personal tax arrangement is its which makes it expensive to comply with the requirement. Everything else being equal, this characteristic tends to a citizen's disposable income. D. Similarly, an advantage of the current business tax requirement is that it is identical for all business organizations. According to this arrangement a business organization will be able to retain for every pre tax sodor earned from these after-tax profits, it will then pay any Vowed on its borrowed capital and any to its shareholders. Given these provisions, the current system the use of one form of financing (debt versus equity) over the other. This is because the arrangement allows for the tax deductibility of financing The sheat of papers accompanying the journal describes several potential revisions to the Rodosian personal and business tax code, including replacing the existing system with a progressive tax system, the assessment of different luxury and sin taxes, and/or modifications of the provision of the current system. Two of the specific proposals include the following: Policy Proposal 11 Replace the existing system with a progressive tax system that would tax business and individuals, using these Schedules: Business Tax Rates 09 arch desso come of asset holdings pay the same more II. How does the current tax system affect the decisions, behaviors, and condition of an individual Rodosian citizen and/or business A. In general, taxes are classified as and both an individual's disposable income and a business's after-tax pratit 8. An advantage of the existing personal tax requirement is that it allows an individual Rodosian to keep of his or her income as his or her tot income increases. The requirement of a constant annual tax payment of SR1,500 means that as his op ual income increases from SR30,000 per year to SR50,000, the proportion of his or her income lost to taxes decreases from to In general, thi type of tax arrangement should be expected to the average individual Rodosian to id less his or her income and quality of life C. A second advantage of Rodos's existing personal tax arrangement is its which makes it expensive to comply with the requirement. Everything else being equal, this characteristic tends to a citizen's disposable income D. Similarly, an advantage of the current business tax requirement is that it is identical for all business organizations. According to this arrangement, a business organization will be able to retain for every pre-tax sodor earned. From these after tax profits, it will then pay any owed on its borrowed capital and any to its shareholders. Given these provisions, the current system the use of one form of financing (debt versus equity) over the other. This is because the arrangement allows for the tax deductibility of financing The sheat of papers accompanying the journal describes several potential revisions to the Rodosian personal and business tax code, including replacing the existing system with a progressive tax system, the assessment of different luxury and sin taxes, and/or modifications of the provisions of the current system. Two of the specific proposals include the following: Policy Proposal 1: Replace the existing system with a progressive tax system that would tax business and individuals, using these schedules: Business Tax Rates BI N 0 99 II. How does the current tax system affect the decisions, behaviors, and condition of an individual Rodosian citizen and/or business? A. In general, taxes are classified as and both an individual's disposable income and a business's after-tax profits. B. An advantage of the existing personal tax requirement is that it allows an individual Rodosian to keep of his or her income as his or her total income increases. The requirement of a constant annual tax payment of SR 1,500 means that as his or her annual income increases from SR30,000 per year to SR50,000, the proportion of his or her income lost to taxes decreases from to In general, this type of tax arrangement should be expected to the average individual Rodosian his or her income and quality of life 5.00% C. A second advantage of Rodos's existing personal tax arrangement is its which expensive to comply with the requirement. Everything else being equal, this characteristic tends to a citizen's d 97.00% come. D. Similarly, an advantage of the current business tax requirement is that it is identical for all busine tions. According to this arrangement, 95.00% a business organization will be able to retain for every pre-tax sodor earned. From tax profits, it will then pay any owed on its borrowed capital and any to its shareholders. Given these provisions, the current system the use of one form of financing (debt versus equity) over the other. This is because the arrangement allows for the tax deductibility of financing The sheal of papers accompanying the journal describes several potential revisions to the Rodosian personal and business tax code, including replacing the existing system with a progressive tax system, the assessment of different luxury and sin taxes, and/or modifications of the provisions of the current system. Two of the specific proposals include the following: Policy Proposal 1. Replace the existing system with a progressive tax system that would tax business and individuals, using these schedules Business Tax Rates o No 11 B. In contrast, the existing system imposed on businesses is an example of a business organizations-regardless of income or asset holdings-pay the same com wealth spent on taxes system. A benefit of this arrangement is that all II. How does the current tax system affect the decisions, behaviors, and condition of an individual Rodosian citizen and/or business? A. In general, taxes are classified as and both an individual's disposable income and a business's after tax profits. B. An advantage of the existing personal tax requirements that it allows an individual Rodosian to keep of his or her incore as his or het total income increases. The requirement of a constant annual tax payment of SR1,500 means that as his or her annual income increases from SR30,000 per year to SR50,000, the proportion of his or her income lost to taxes decreases from to In general, this type of tax arrangement should be expected to the average individual Rodosian to improve his og and quality of life C. A second advantage of Rodos's existing personal tax arrangement is its 95.0096 , which makes it comply with the requirement. Everything else being equal, this characteristic tends to a citizen's disposable income 97.00% D. Similarly, an advantage of the current business tax requirement is that it is identical for all business organizations Ho this arrangement 3.00% a business organization will be able to retain for every pre-tax sodor earned. From these after-tax pe then pay any owed on its borrowed capital and any to its shareholders. Given these provisions, the current system the use of one form of financing (debt versus equity) over the other. This is because the arrangement allows for the tax deductibility of financing The sheaf of papers accompanying the journal describes several potential revisions to the Rodosian personal and business tax code, induding replacing the existing system with a progressive tax system, the assessment of different luxury and sin tuws, and/or modifications of the provisions of the current system. Two of the specific proposals include the following: Policy Proposal 11 Replace the existing system with a progressive tax system that would tax business and individuals, using these schedules Business Tax Rates Na i 9. arch system. A benefit of this arrangement is that all B. In contrast, the existing system imposed on businesses is an example of a business organizations regardless of income or asset holdings-pay the same 11. How does the current tax system affect the decisions, behaviors, and condition of an individual Rodosian citizen and/or business? A. In general, taxes are classified as vand V both an individual's disposable income and a business's after tax profits. B. An advantage of the existing personal tax requirement is that it allows an individual Rodosiin to keep of his or her income as his or her total income increases. The requirement of a constant annual tax payment of SR1,500 means that as his or her annual income increases from SR30,000 per year to SR50,000, the proportion of his or her income lost to taxes decreases from to In general, this type of tax arrangement should be expected to w the average individual Rodosian to improve his or her income and quality of life C. A second advantage of Rodos's existing personal tax arrangement is its which makes it expensive to comply with the requirement. Everything else being equal, this characteristic tends to a citizen's disposable income D. Similarly, an advantage of the current business tax requirement is the Fal for all business organizations. According to this arrangement, decrease a business organization will be able to retain for every earned. From these after-tax profits, it will then pay any owed on its borrowed capital and any increase s shareholders. Given these provisions, the current system the use of one form of financing (debt veruse over the other. This is because the arrangement allows for the tax deductibility of financing The sheat of papers accomparing the journal describes several potential revisions to the Rodosion personal and business tax code, including replacing the existing system with a progressive tax system, the assessment of different luxury and sin taxes, and/or modifications of the provisions of the current system. Two of the specific proposals include the following: Policy Proposal 1. Replace the existing system with a progressive tax system that would tax business and individuals, using these schedulest Business Tax Rates Nd O I. A. In general, taxes are classified as and both an individual's disposable income and a business's after tax prohits B. An advantage of the existing personal tax requirement is that it allows an individual Rodosian to keep of his or her income as his or her total income increases. The requirement of a constant annual tax payment of SR1,500 means that as his or her annual income increases from SR30,000 per year to SR50,000, the proportion of his or her income lost to taxes decreases from to In general, this type of tax arrangement should be expected to the average individual Rodosian to improve his or her income and quality of life, C. A second advantage of Rodos's existing personal tax arrangement is its , which makes it expensive to comply with the requirement. Everything else being equal, this characteristic tends to a citizen's disposable income. D. Similarly, an advantage of the current business tax requirement is that it is identical for all business organizations. According to this arrangement, a business organization will be able to retain for every pre tax sodor earned. From these after tax profits, it will then pay any owed on its borrowed cap ny to its shareholders. Given these provisions, the current system SR 1.00 the use of one to cing (debt versus equity) over the other. This is because the arrangement allows for the tax deductibility of SRO.85 financing SR1.15 The sheal of papers accompanying the journal de Jeral potential revisions to the Rodosion personal and business tax code, including replacing the existing system with a progressive SRO as the assessment of different luxury and sin taxes, and/or modifications of the provisions of the current system. Two of the specific proposals There the following: Policy Proposal 1: Replace the existing system with a progressive tax system that would tax business and individuals, using these schedules Plus This Percentage on the Excess over the Business Tax Rates If your Taxable income is You Pay This Amount on the base of the Bracket Up to SR9,000,000 SR9,000,000-5R21,000,000 SRO SR1,620,000 * Nd 09 . arch II. How does the current tax system affect the decisions, behaviors, and condition of an individual Rodosian citizen and/or business? A. In general, taxes are classified as Vand V both an individual's disposable income and a business's after-tax profits B. An advantage of the existing personal tax requirement is that it allows an individual Rodosian to keep of his or her income as his or her total income increases. The requirement of a constant annual tax payment of SR1,500 means that as his or her annual income increases from SR30,000 per year to SR50,000, the proportion of his or her income lost to taxes decreases from to In general, this type of tax arrangement should be expected to the average individual Rodosian to improve his or her income and quality of life. C. A second advantage of Rodos's existing personal tax arrangement is its which makes it expensive to comply with the requirement. Everything else being equal, this characteristic tends to a citizen's disposable income D. Similarly, an advantage of the current business tax requirement is that it is identical for all business organizations. According to this arrangement, a business organization will be able to retain for every pre tax sodor earned. From these after-tax profits, it will then pay any owed on its borrowed capital and any V to its shareholders. Given these provisions, the current system the use of one form of financing (debt versus equity) over the other. This is because the arrangement allows for the capital gains financing of interest The accompanying the journal describes several potential revisions to the Rodosian personal and business tax code, including dividends repla Jo system with a progressive tax system, the assessment of different luxury and sin taxes, and/or modifications of the provisions of the current system. Two of the specific proposals include the following: Policy Proposal 1: Replace the existing system with a progressive tax system that would tax business and individuals, using these schedules Business Tax Rates If your taxable income is Plus This Percentage on the Excess over the You Pay This Amount on the Base of the Bracket SRO SRL,620,000 219 Up to 5R9,000,000 59,000,000-SR21,000,000 I "ch II. How does the current tax system affect the decisions, behaviors, and condition of an individual Rodosian citizen and/or business? A. In general, taxes are dassified as Vand both an individual's disposable income and a business's after tax profits. B. An advantage of the existing personal tax requirement is that it allows an individual Rodosian to keep of his or her income as his or her total income increases. The requirement of a constant annual tax payment of SR1,500 means that as his or her annual income increased from SR30,000 per year to SR50,000, the proportion of his or her income lost to taxes decreases from to In general, this type of tax arrangement should be expected to y the average individual Rodosian to improve his or her income and quality of life. C. A second advantage of Rodos's existing personal tax arrangements its which makes it expersive to comply with the requirement. Everything else being equal, this characteristic tends to a citizen's disposable income. D. Similarly, an advantage of the current business tax requirement is that it is identical for all business organizations. According to this arrangement, a business organization will be able to retain for every pre-tax sodor earned. From these after tax profits, it will then pay at owed on its borrowed capital and any to its shareholders. Given these provisions, the current system the use of one form of finance equity) over the other. This is because the arrangement allows for the capital gains tax deductibility of interest The sheaf of papers accompanying the journal describes sever sions to the Rodosian personal and business tax code, including dividends different luxury and sin taxes, and/or modifications of the provisions of replacing the existing system with a progressive tax system, the current system. Two of the specific proposals include the following: Policy Proposal 1: Replace the existing system with a progressive tax system that would tax business and individuals, using these schedules: Plus This Percentage on the Excess over the Business Tax Rates If your Taxable income is You Pay This Amount on the Base of the Bracket SRO SR1,620,000 Up to SR9,000,000 5R9,000,000 $21,000,000 99. earch II. How does the current tax system affect the decisions, behaviors, and condition of an individual Rodosian citizen and/or business? A. In general, taxes are classified as vand both an individual's disposable income and a business's after-tax profits B. An advantage of the existing personal tax requirement is that it allows an individual Rodosian to keep of his or her income as his or her total income increases. The requirement of a constant annual tax payment of SR1,500 means that as his or her annual income increases from SR30,000 per year to SR50,000, the proportion of his or her income lost to taxes decreases from to In general, this type of tax arrangement should be expected to w the average individual Rodosian to improve his or her income and quality of life C. A second advantage of Rodos's existing personal tax arrangement is its which makes it expensive to comply with the requirement. Everything else being equal, this characteristic tends to a citizen's disposable income. D. Similarly, an advantage of the current business tax requirement is that it is identical for all business organizations. According to this arrangement, a business organization will be able to retain for every pre tax sodor earned. From these after-tax profits, it will then pay any owed on its borrowed capital and any to its shareholders. Given these provisions, the current system the use of one form of financing (debit versus equity) over the other. This is because the arrangement allows for the fancing does not encourage The encourages panying the journal describes several potential revisions to the Rodosian personal and business tax code, including replacement with a progressive tax system, the assessment of different luxury and sin taxes, and/or modifications of the provisions of the current system. Two of the specific proposals include the following: Policy Proposal 1. Replace the existing system with a progressive tax system that would tax business and individuals, using these schedules Plus This Percentage on the Excess over the Business Tax Rates If your Taxable income is You pay This Amount on the Base of the Bracket 19 Up to 9,000,000 9,000,000-5121,000,000 581,620,000 o o search 11. How does the current tax system affect the decisions, behaviors, and condition of an individual Rodosian citizen and/or business? A. In general, taxes are dassified as and both an individual's disposable income and a business's after-tax profits B. An advantage of the existing personal tax requirement is that it allows an individual Rodosian to keep of his or her income as his or her total income increases. The requirement of a constant annual tax payment of SR1,500 means that as his or her annual income increases from SR30,000 per year to SR50,000, the proportion of his or her income lost to taxes decreases from to In general, this type of tax arrangement should be expected to the average individual Rodosian to improve his or her income and quality of life. C. A second advantage of Rodos's existing personal tax arrangement is its , which makes it expensive to comply with the requirement. Everything else being equal, this characteristic tends to a citizen's disposable income. D. Similarly, an advantage of the current business tax requirement is that it is identical for all business organizations. According to this arrangement, a business organization will be able to retain for every pre-tax sodor earned. From these after-tax profits, it will then pay any owed on its borrowed capital and any to its shareholders. Given these provisions, the current system the use of one form of financing (debt versus equity) over the other. This is because the arrangement allows for the tax deductibility of financing ry The sheaf of papers acd only a business's debt al potential revisions to the Rodosian personal and business tax code, including replacing the existing only a business's equity The assessment of different luxury and sin taxes, and/or modifications of the provisions of the current system. TW following: both a business's debt and equity Policy Proposal 1: Rd rogressive tax system that would tax business and individuals, using these neither a business's debt nor equity schedules: Plus This Percentage on the Excess over the Business Tax Rates If your Taxable income is You Pay This Amount on the base of the Bracket SRO 2176 Up to SR9,000,000 5R9,000,000-SR21,000,000 SR1,620,000 Nd -search 1. Taxes in the kingdom of Rodos Imagine that while cleaning out your great-grandfather's attic, you find a rucksack containing a journal and a sheaf of papers. Your great-grandfather, a noted entrepreneur and businessman, was also an accomplished amateur explorer. The journal, which appears to be written in your great- grandfather's hand, is a diary describing a series of visits to a small uncharted island called Rodos, in the northern Atlantic during the late 1800s. The journal and papers contain notes made during his conversations with Valdimar, king of Rodos, when they discussed the kingdom's business and economic conditions. Notes February 1, 1878 Background on the Kingdom and Economy of Rodos Rodos is a small agraran island Kingdom. Most Rodosian citizens live in small towns or in rural areas, King Valdimar and his royal court, on the other hand, live in the country's single, geographically centralized city King Valdimar, an enlightened ruler, wants to create an economy that improves Rodosians' standard of living and quality of life. He is also concerned with being as far as he can to cach citizen. The king has vast property holdings, but he does allow his citizens to own real and personal property, which can be used to generate the income to improve their standard of living and to pay their taxes, Tax revenues are used to provide for the island's defense and general services, such as postal system and the construction and maintenance of roads, bridges, and similar structures financial markets are rudimentary but effective Citizens and businesses with O Notes --February 1, 1878 Background on the Kingdom and Economy of Rodos Rodos is a small agrarian island kingdom. Most Rodosian citizens live in small towns or in rural areas. King Valdimar and his royal court, on the other hand, live in the country's single, geographically centralized city. King Valdimar, an enlightened ruler, wants to create an economy that improves Rodosians' standard of living and quality of life. He is also concerned with being as fair as he can to each citizen. The king has vast property holdings, but he does allow his citizens to own real and personal property, which can be used to generate the income to improve their standard of living and to pay their taxes. Tax revenues are used to provide for the island's defense and general services, such as a postal system and the construction and maintenance of roads, bridges, and similar structures. Financial markets are rudimentary but effective Citizens and businesses with more income than they require may deposit their funds into banks, who in tum may lend these funds to qualified borrowers. Rodos's equity markets are more constrained; owners are not allowed to sell more than 33% ownership of their company. So, though equity markets exist, there aren't many companies nor large numbers of shares bought and sold. Selected Provisions of the Rodosian Tax Code King Valdimar's current tax regime, both personal and corporate, is intended to be fair to everyone. The personal tax assesses the same tax -1,500 sodors (SR) per year-on each person, regardless of circumstance (rich or poor) or station (member of court, businessman, craftsman, or fisherman) alita O BE 99. Selected Provisions of the Rodosian Tax Code King Valdimar's current tax regime, both personal and corporate, is intended to be fair to everyone. The personal tax assesses the same tax-1,500 sodors (SR) per year-on each person, regardless of circumstance (rich or poor) or station (member of court, businessman, craftsman, or fisherman). The taxable income of all businesses-regardless of form (proprietorship, partnership, or corporation) - is subject to a 15% tax rate. Neither interest on borrowed funds nor dividends on outstanding shares are allowed to be paid using pre-tax income. Normal operating expenses, however, are tax-deductible s you read through the journal notes, you decide to take the rucksack to your finance class tomorrow to axes on decision making. However, to ensure that you are ready for this discussion, you've prepared and questions to be addressed. (Hint: For a brief reminder of relevant terms, click on the Definitions tab. Also, Rodosian with your own--particularly when attempting to predict future behaviors.) Term Disposable income Definitions Description The income that remains after the deduction of taxes and other mandatory balance is available for spending or saving as desired. Elt 99 No o Definitions Term Description Disposable income The income that remains after the deduction of taxes and other mandatory charges. This balance is available for spending or saving as desired. Excise tax This tax, which is levied on the consumption of certain products, is frequently included in the price of the product Luxury tax A tax levied on products or services that are deemed to be unnecessary, excessive, or nonessential to a normal standard of living Flat tax system Also called a proportional tax system, this scheme requires each taxpayer to pay the same tax rate. An example of a flat rate is a sales tax Progressive tax system This tax scheme imposes lower tax rates on less affluent taxpayers and higher tax rates on wealthier taxpayers. Regressive tax system This scheme requires each taxpayer to pay the same dollar amount regardless of income. An example of a regressive tax is a user fee for a bridge or toll road Sintax This tax is levied on products or services that the government perceives as vice. This tax, which also generates additional government revenue, is intended to discourage the consumption of these goods or services without making their illegat. 1. What general observations can be made regarding tax systems in general and the Rodosian tax code? A In general, there are three different types of tax wystem progressive, regressive, and that tax systems. The existing Modasan witam individual (personal) taxpayers an example of a system. One benefit of the existing systems that it mcreases the tobus because every citizen pays taxes, as a result, very taxpayer should care about how King Valdimar spends his twee the wealth or income of an individual taxpayer decreases the proportion of bus or her income or with spent on the In contrast, the ing system imposed on businesses is an example of stom. A benefit of this arrangementet O i > N inance in Action - Taxes Regressive tax system Sin tax on wealthier taxpayers. This scheme requires each taxpayer to pay the same dollar amount regardless of income. An example of a regressive tax is a user fee for a bridge or toll road. This tax is levied on products or services that the government perceives as vices. This tax, which also generates additional government revenue, is intended to discourage the consumption of these goods or services without making their use illegal 1. What general observations can be made regarding tax systems in general and the Rodosian tax code? A. In general, there are three different types of tax systems: progressive, regressive, and flat tax systems. The existing Rodosion system imposed on individual (personal taxpayers is an example of a system. One benefit of the existing system is that it increases the kingdom's tax base because every citizen pays taxes, as a rer payer should care about how King Valdimar spends his tax revenue. However, as the wealth or income of an individual taxpayer de portion of his or her income or wealth spent on taxes B. In contrast, the existing system imposed on busir regressive ample of a system. A benefit of this arrangement is that alt business organizations regardless of income or a pay the same progressive 11. How does the current tax system affect the decisions, behaviors, and condition of an individual Rodosian citizen and/or business? A In general, taxes are classified as and both an individual's disposable income and a business's after tax profits B. An advantage of the existing personal tax requirements that it allows an individual Rodosian to keep of his or her income as his or het total income increases. The requirement of a constant annual tax payment of SR1,500 means that as his or her annual income increases from SR30,000 per year to SR50,000, the proportion of his or her income lost to taxes decreases from type of tax arrangement should be expected to the average individual Rodosian to improve his or her income and quality of the C. A second advantage of Rodos's existing personal tax arrangement is it , which makes it expensive to comply with the requirement. Everything else bring equal, this characteristic tends to actes desposable income D. Smilarly, an advantage of the current business tax requirement is that it is idential for all business organisations According to this arrangement siness organization will be able to retain for every pre tax sodor med. From these after tak profits, will then py to o 99 and . What general observations can be made regarding tax systems in general and the Rodosian tax code? In general, there are three different types of tax systems: progressive, regressive, and flat tax systems. The existing Rodosian system imposed on individual (personal) taxpayers is an example of a system. One benefit of the existing system is that it increases the kingdom's tax base because every citizen pays taxes; as a result, every taxpayer should care about how King Valdimar spends his tax revenue. However, as the wealth or income of an individual taxpayer decreases, the proportion of his or her income or wealth spent on taxes B. In contrast, the existing system imposed on businesses is an example of a system. A benefit of this business organizations regardless of income or asset holdings-pay the same remains constant decreases II. How does the current tax system affect the decisions, behaviors, and condition of an individual Rodosian increases A. In general, taxes are classified as both an individual's disposable income and a (profits. B. An advantage of the existing personal tax requirement that it allows an individual Rodosian to keep of his or her income as his or her total income increases. The requirement of a constant annual tax payment of SR1,500 means that as his or her annual income increases from SR30,000 per year to SR50,000, the proportion of his or her income lost to taxes decreases from to In general, this type of tax arrangement should be expected to the average individual Rodosian to improve his or her income and quality of life. C. A second advantage of Rodos's existing personal tax arrangement is its , which makes it expensive to comply with the requirement. Everything else being equal, this characteristic tends to acturen's disposable income. D. Similarly, an advantage of the current business tax requirement is that it is identical for all business organizations. According to this arrangement, business organization will be able to retain for every pre tax sodor earned from these after tax profits, it will then pay any RE No 99 o What general observations can be made regarding tax systems in general and the Rodosian tax code? In general, there are three different types of tax systems: progressive, regressive, and flat tax systems. The existing Rodosion system imposed on individual (personal) taxpayers is an example of a system. One benefit of the existing system is that it increases the kingdom's tax base because every citizen pays taxes; as a result, every taxpayer should care about how King Valdimar spends his tax revenue. However, as the wealth or income of an individual taxpayer decreases, the proportion of his or her income or wealth spent on taxes B. In contrast, the existing system imposed on businesses is an example of a system. A benefit of this arrangement is that all business organizations-regardless of income or asset holdings--pay the sa regressive II. How does the current tax system affect the decisions, behaviors, a flat of an individual Rodosian citizen and/or business? A. In general, taxes are classified as and al's disposable income and a business's after-tax profits. progressive B. An advantage of the existing personal tax requirement is that it allows an bian to keep of his or her income as his or her total income increases. The requirement of a constant annual tax payment of SR1,500 means that as his or her annual income increases from SR30,000 per year to SR50,000, the proportion of his or her income lost to taxes decreases from to In general, this type of tax arrangement should be expected to the average individual Rodosian to improve his or her income and quality of life C. A second advantage of Rodos's existing personal tax arrangement is its which makes it expensive to comply with the requirement. Everything else being equal, this characteristic tends to acturen's disposable income D. Similarly, an advantage of the current business tax requirement is that it is identical for all business organizations. According to this arrangement, business organization will be able to retain for every pre tax odor earned from these after tax profits, it will then pay any de O RI 99 1. What general observations can be made regarding tax systems in general and the Rodosian tax code? A. In general, there are three different types of tax systems: progressive, regressive, and flat tax systems. The existing Rodosian system imposed on individual (personal) taxpayers is an example of a system. One benefit of the existing system is that it increases the kingdom's tax base because every citizen pays taxes, as a result, every taxpayer should care about how King Valdimar spends his tax revenue. However, as the wealth or income of an individual taxpayer decreases, the proportion of his or her income or wealth spent on taxes B. In contrast, the existing system imposed on businesses is an example of a system. A benefit of this arrangement is that all business organizations-regardless of income or asset holdings-pay the same 11. How does the current tax system affect the decisions, behaviors, and tax rate individual Rodosian citizen and/or business? A. In general, taxes are cassified as Y and both tax obligation sposable income and a business after tax profits B. advantage of the existing personal tax requirement is that it allows an individual Rodosian to keep of his or her income as his or her total income increases. The requirement of a constant annual tax payment of SR1,500 means that as his or her annual income increases from SR30,000 per year to SR50,000, the proportion of his or her income lost to taxes decreases from to In general, this type of tax arrangement should be expected to w the average individual Rodosian to improve his or her income and quality of life C. A second advantage of Rodos's existing personal tax arrangement is which makes it expensive to comply with the requirement. Everything else being equal, this characteristic tends to a citizen's disposable income 1. Similarly, an advantage of the current business tax requirement is that it is identical for all business organizations. According to this arrangement, business organization will be able to retain for every pre tax odor earned. From these after tax profits, it will then pay any hold. 0 PRAE 99 N 0 Ur his or her income or wealth spent on taxes B. In contrast, the existing system imposed on businesses is an example of a system. A benefit of this arrangement is that all business organizations-regardless of income or asset holdings--pay the same 11. How does the current tax system affect the decisions, behaviors, and condition of an individual Rodosian citizen and/or business? A. In general, taxes are classified as and both an individual's disposable income and a business's after-tax profits. 3. An advantage of the existing perse ement is that it allows an individual Rodosian to keep of his or her income as his or her total income increases. The requiremer an expense annual tax payment of SR1,500 means that as his or her annual income increases from SR30,000 per year to SR50,000, a revenue of his or her income lost to taxes decreases from to . In general this type of tax arrangement should be expected to the average individual Rodosian to improve his or her income and quality of life. C. A second advantage of Rodos's existing personal tax arrangement is its , which makes it expensive to comply with the requirement. Everything else being equal, this characteristic tends to a citizen's disposable income. D. Similarly, an advantage of the current business tax requirement is that it is identical for all business organizations. According to this arrangement a business organization will be able to retain for every pre-tax sodor earned. From these after-tax profits, it will then pay any owed on its borrowed capital and any to its shareholders. Given these provisions, the current system the use of one form of financing (debt versus equity) over the other. This is because the arrangement allows for the tax deductibility of financing The heat of papers accompanying the journal describes several potential revisions to the Rodosian personal and business tax code, induding replacing the existing system with a progressive tax system, the assessment of different luxury and sin taxes, and/or modifications of the provisions of the current system. Two of the specific proposals include the following: Policy Proposal 1: Replace the existing system with a progressive tax system that would tax business and individuals, using these schedules BusineNN Tax Rates ** business organizations-regardless of income or asset olingssyteme II. How does the current tax system affect the decisions, behaviors, and condition of an individual Rodosian citizen and/or business? A In general, taxes are classified as and both an individual's disposable income and a business's after-tax profits B. An advantage of the existing personal tax requirement is an individual Rodosian to keep of his or her income as his or her total decrease income increases. The requirement of a constant annual of SR1,500 means that as his or her annual income increases from SR30,000 per year to SR50,000, the proportion of his or increase pst to taxes decreases from to In general, this type of tax arrangement should be expected to troverage individual Rodosian to improve his or her income and quality of life. C. A second advantage of Rodos's existing personal tax arrangement is its which makes it expensive to comply with the requirement. Everything else being equal, this characteristic tends to a citizen's disposable income. D. Similarly, an advantage of the current business tax requirement is that it is identical for all business organizations. According to this arrangement a business organization will be able to retain for every pre tax sodor earned from these after-tax profits, it will then pay any Vowed on its borrowed capital and any to its shareholders. Given these provisions, the current system the use of one form of financing (debt versus equity) over the other. This is because the arrangement allows for the tax deductibility of financing The sheat of papers accompanying the journal describes several potential revisions to the Rodosian personal and business tax code, including replacing the existing system with a progressive tax system, the assessment of different luxury and sin taxes, and/or modifications of the provision of the current system. Two of the specific proposals include the following: Policy Proposal 11 Replace the existing system with a progressive tax system that would tax business and individuals, using these Schedules: Business Tax Rates 09 arch desso come of asset holdings pay the same more II. How does the current tax system affect the decisions, behaviors, and condition of an individual Rodosian citizen and/or business A. In general, taxes are classified as and both an individual's disposable income and a business's after-tax pratit 8. An advantage of the existing personal tax requirement is that it allows an individual Rodosian to keep of his or her income as his or her tot income increases. The requirement of a constant annual tax payment of SR1,500 means that as his op ual income increases from SR30,000 per year to SR50,000, the proportion of his or her income lost to taxes decreases from to In general, thi type of tax arrangement should be expected to the average individual Rodosian to id less his or her income and quality of life C. A second advantage of Rodos's existing personal tax arrangement is its which makes it expensive to comply with the requirement. Everything else being equal, this characteristic tends to a citizen's disposable income D. Similarly, an advantage of the current business tax requirement is that it is identical for all business organizations. According to this arrangement, a business organization will be able to retain for every pre-tax sodor earned. From these after tax profits, it will then pay any owed on its borrowed capital and any to its shareholders. Given these provisions, the current system the use of one form of financing (debt versus equity) over the other. This is because the arrangement allows for the tax deductibility of financing The sheat of papers accompanying the journal describes several potential revisions to the Rodosian personal and business tax code, including replacing the existing system with a progressive tax system, the assessment of different luxury and sin taxes, and/or modifications of the provisions of the current system. Two of the specific proposals include the following: Policy Proposal 1: Replace the existing system with a progressive tax system that would tax business and individuals, using these schedules: Business Tax Rates BI N 0 99 II. How does the current tax system affect the decisions, behaviors, and condition of an individual Rodosian citizen and/or business? A. In general, taxes are classified as and both an individual's disposable income and a business's after-tax profits. B. An advantage of the existing personal tax requirement is that it allows an individual Rodosian to keep of his or her income as his or her total income increases. The requirement of a constant annual tax payment of SR 1,500 means that as his or her annual income increases from SR30,000 per year to SR50,000, the proportion of his or her income lost to taxes decreases from to In general, this type of tax arrangement should be expected to the average individual Rodosian his or her income and quality of life 5.00% C. A second advantage of Rodos's existing personal tax arrangement is its which expensive to comply with the requirement. Everything else being equal, this characteristic tends to a citizen's d 97.00% come. D. Similarly, an advantage of the current business tax requirement is that it is identical for all busine tions. According to this arrangement, 95.00% a business organization will be able to retain for every pre-tax sodor earned. From tax profits, it will then pay any owed