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 (blank). system. One benefit of the existing system is that it increases the kingdoms 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 (blank)

.B. In contrast, the existing system imposed on businesses is an example of a (blank) system. A benefit of this arrangement is that all business organizationsregardless of income or asset holdingspay the same (blank) .

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 (blank) and (blank) both an individuals disposable income and a businesss after-tax profits.
B.	An advantage of the existing personal tax requirement is that it allows an individual Rodosian to keep (blank) of his or her income as his or her total income increases. The requirement of a constant annual tax payment of SR1,200 means that as his or her annual income increases from SR12,000 per year to SR35,000, the proportion of his or her income lost to taxes decreases from (blank) to (blank) . In general, this type of tax arrangement should be expected to (blank) the average individual Rodosian to improve his or her income and quality of life.
C.	A second advantage of Rodoss existing personal tax arrangement is its (blank) , which makes it (blank) expensive to comply with the requirement. Everything else being equal, this characteristic tends to (blank) a citizens 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 (blank) for every pre-tax sodor earned. From these after-tax profits, it will then pay any (blank) owed on its borrowed capital and any (blank) to its shareholders. Given these provisions, the current system (blank) the use of one form of financing (debt versus equity) over the other. This is because the arrangement allows for the tax deductibility of (blank) financing.

The sheaf 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
If your Taxable Income Is	You Pay This Amount on the Base of the Bracket		Plus This Percentage on the Excess over the Base
Up to SR5,000,000	SR0		10%
SR5,000,000SR10,000,000	SR500,000		15%
SR10,000,000SR20,000,000	SR1,250,000		20%
SR20,000,000SR40,000,000	SR3,250,000		25%
SROver 40,000,000	SR8,250,000		30%
Personal Tax Rates
If your Taxable Income Is	You Pay This Amount on the Base of the Bracket		Plus This Percentage on the Excess over the Base
Up to SR6,000	SR0		5%
SR6,000SR24,000	SR300		10%
SR24,000SR50,000	SR2,100		15%
SROver 50,000	SR6,000		20%

Given these tax schedules, calculate the tax liabilities for:

	Gullivers Goldsmiths Company, which earns an income of SR25,000,000
	The following three individual taxpayers: (1) Gunnar, a beekeeper earning SR12,000 per year; (2) Marget, a cooper (barrel maker) earning SR35,000 per year; (3) Bjorn, a banker earning SR70,000 per year

Note: Round your average tax rate answers to two decimal places.

Taxpayer	Tax Obligation	Average Tax Rate
Gullivers Goldsmiths	SR	%
Gunnar	SR	%
Marget	SR	%
Bjorn	SR	%

Assume that Gunnar owes the same tax liability under both the current tax system and the proposed (progressive) system. As an economically rational taxpayer, why should he prefer the current system?

Because under the progressive tax system the next sodor earned would be taxed at the highest tax rate (20%); under the current system, it would be exempt from additional taxes.

Because under the current system the next sodor earned would be taxed at the rate of 1.2%; under the progressive system, it would not be subject to any tax.

Because under the progressive tax system the next sodor earned would be taxed at the rate of 10%; under the current system, it would not be subject to any tax.

Policy Proposal 2: Impose a special tax on individual taxpayers who purchase or own a cart and wagon that costs more than SR12,000. (The average cost of a Rodosian cart or wagon is SR6,000.)

What effect will this tax have on Rodosian businesses?

This progressive tax is designed to encourage the purchase and use of carts and wagons costing more than SR12,000

This luxury tax effectively punishes individual consumers, as well as the manufacturers and sellers, of what King Valdimar or his advisors construe as excessively expensive carts and wagons.

This example of an income tax is designed to punish rich Rodosians for earning sufficient income to afford expensive carts and wagons.