Step 1.A.1. - Personal Income Tax rates You must decide personal income tax rates for 3 income groups: lower, middle, and upper income. (For each group you will choose the marginal tax rate. Your choices are 0%, 5%, 10%, 15%, 20%, 25%, 30%, 35%, 40%, 45%, or 50%.) In the table below, you will find how much revenue you will collect from each income group. Income tax revenue (in billions of $) at various tax rates 0% 5% 10% 15% 20% 25% 30% 35% 40% 45% 50% Lower $0 $20 $40 $60 $80 $100 $120 $140 $160 $180 $200 Middle $0 $25 $50 $75 $100 $125 $150 $175 $200 $225 $250 Upper $0 $50 $100 $150 $200 $250 $300 $350 $400 $450 $500 The income tax rates will be: Lower (income under $40,000) = % Middle ($40,000 - 100,000) % % Upper (over $100,000) (fill in space below) Step 1.A.2. - Income Tax Revenue Referring to the table above, billion (middle) + Total income tax revenue = $ $ billion (upper) $ billion (lower) + $_ billion (fill in space below) Step 1.B.1. - Sales Tax rate You must decide the SalesTax. For reference, state and local sales taxes around Seattle add up to approximately 10%, some of the highest in America. In the USA, there is no national sales tax, although a number of countries have them, also known as VATs (value added taxes) or GSTs (general sales taxes.) Sales tax revenue (in billions of $) at various tax rates 0% 2% 4% 6% 8% 10% 12% revenue $0 $60 $120 $180 $240 $300 $360 The sales tax rate in Shorelinia will be % 1611 Step 1.8.2 - Sales tax revenue Look up the tax revenue generated by your chosen tax rate in the table above. The sales tax revenue will be $ billion. (fill in space below) Step 1.C.2 - Payroll tax revenue Look up the tax revenue generated by your chosen tax rate in the table above. The payroll tax revenue will be $ billion. (fill in space below) Step 2: - Total tax revenue Based on your choices above, the total tax revenue collected was $ billion from income tax $ billion from sales tax + $ billion from payroll tax $ billion total tax revenue (fill in space below) If your tax system collected less than $1,000 billion, you will need to raise at least one of the taxes above, making sure that you raise at least $1,000 billion. Don't worry if you go a little bit over If your tax system collected more than $1 100 billion, you need to lower at least one of the taxes. When your total tax collection is at least $1000 billion and less than $1,100 billion, go on to the next step. Step 3: Classification of tax system You will now measure the effect (or burden) of your tax system on different income groups. This is called the tax incidence. It differs from tax rates, because not all income is taxed. For example, there are deductions and exemptions for income tax, untaxed items for the sales tax, and income that is not taxed by the payroll tax. Income tax incidence table (find your three rates for the 3 income groups) Income Tax rate 0% 5% 10% 15% 20% 25% 30% 35% 40% 45% 50% 8% 10% 13% 15% 18% 20% 23% 25% Tax incidence for 0% 2% 5% lower income group Tax incidence for middle income 0% 2% 5% group 8% 10% 13% 15% 18% 20% 23% 25% Tax incidence for 0% 2% 5% upper income group 8% 10% 13% 15% 18% 20% 23% 25% Sale tax incidence table (find your rate) 0% 4% 6% 8% 1096 12% Sales Tax rate Tax incidence for lower income 0% 1% 3% 4% 6% 8% 10% group Tax incidence for middle income 0% 1% 2% 2% 3% 4% 596 group Sales Tax rate 0% 2% 4% 6% 8% 10% 12% Tax incidence for lower income 0% 1% 3% 4% 6% 8% 10% group Tax incidence for middle income 0% 1% 12% 2% 3% 4% 5% group Tax incidence for upper income group 0% 0% 1% 1% 2% 2% 3% Payroll tax incidence table (find your rate) 4% 6% 8% 10% 12% 6% 9% 11% 14% 18% Payroll Tax rate 0% 2% Tax incidence for lower 0% 3% income group Tax incidence for middle 0% 2% income group Tax incidence for upper 0% 1% income group 4% 6% 9% 12% 15% 3% 5% 6% 7% 9% Question: % income tax incidence + [+% sales tax incidence + Effect on lower income group: % payroll tax incidence = Effect on middle income group: % income tax incidence + +% sales tax incidence + O anca 00 20 0 9% 11% 14% 18% Tax incidence for lower 0% 3% 6% income group Tax incidence for middle 0% 2% 2% 14% income group Tax incidence for upper 0% 1% 3% income group 6% 9% 12% 15% 5% 6% 7% 9% Question: +% sales tax incidence + Effect on lower income group: % payroll tax incidence = % income tax incidence + % +% sales tax incidence + Effect on middle income group: % payroll tax incidence = % income tax incidence + % % income tax incidence + +% sales tax incidence + Effect on upper income group: % payroll tax incidence = (fill in space below) To improve the tax incidence, you may go back to Step 1 and adjust your income, sale, and payroll tax rates so that your are satisfied with the effect on each income group. Once you have made final adjustments, classify your tax system. Is you overall system progressive, regressive, or proportional? Explain briefly. How can you justify this system