Page 189 - Business Principles and Management
P. 189
Unit 2
FIGURE 7-4 People with very high incomes often prefer regressive taxes.
PERSON A PERSON B
Take-Home Pay $30,000 $100,000
State Sales Tax 6% 6%
Take-Home Pay Not Spent 0 $20,000
Take-Home Pay Spent $30,000 $80,000
Tax Calculation ($30,000 x .06) ($80,000 x .06)
Tax $1,800 $4,800
Tax Rate Calculation ($1,800/$30,000 ) ($12,400/$60,000)
Effective Tax Rate 6% 5%
applies to purchases rather than to income, the general sales tax is regressive.
For a less regressive sales tax, some states exclude taxes on such purchases as
food and clothing. These exclusions are usually items on which low-income
families spend a high percentage of their income.
CHECKPOINT
Explain the three types of tax policies.
Types of Taxes
Taxation has become so complicated that the average businessperson spends a
great deal of time filling out tax forms, computing taxes, and filing reports. In
many businesses, various taxes reduce income by a large percentage. The three
most common taxes affecting businesses and individuals are income taxes, sales
176
