EFFECTIVE TAX RATE

Discretionary income is the income people have left over after paying for necessities like rent, food, transportation, etc. The cost of basic expenses does increase with income, since housing and car costs are higher, however usually not proportionally.

1. For each income group, estimate their essential expenses, and calculate their discretionary income.
2. Then compute the effective tax rate for each plan relative to discretionary income rather than income.

GROUP

Income per household

Discretionary Income (estimated)

Effective rate, flat

Effective rate, modified

Effective rate, progressive

A

$12,000

B

$29,000

C

$50,000

D

$79,000

E

$129,000

F

$295,000

CONCLUSION

1. Which plan seems the fairest to you? Why?
2. Which plan seems the least fair? Why