Question 2: Multiple Choice (Worth 10 points) (01.03 LC) Which statement explains a proportional tax system? A proportional tax system has the same tax rate for all income levels.

Answer: A proportional tax system has the same tax rate for all income levels. This means that no matter how much income an individual earns, they will pay the same percentage of their income in taxes. For example, if the proportional tax rate is set at 10%, someone earning $30,000 will pay $3,000 in taxes, and someone earning $100,000 will also pay 10% of their income, which would be $10,000.

Extra: In contrast to a proportional tax system, there are progressive and regressive tax systems. A progressive tax system charges a higher tax rate as income increases; this means that higher-income earners pay a larger percentage of their income in taxes than lower-income earners. The United States federal income tax is an example of a progressive tax. On the other hand, a regressive tax system charges a lower tax rate as income increases, causing lower-income earners to pay a relatively higher percentage of their income in taxes compared to higher-income earners. Sales tax is sometimes considered regressive because it takes a larger percentage of income from low-income earners than from high-income earners.

When discussing tax systems, it's important to consider principles like fairness, efficiency, and simplicity. A proportional tax is sometimes praised for its simplicity and for treating all taxpayers equally in terms of the percentage of income paid in tax. Critics, however, may argue that proportional taxes are not equitable, as paying the same percentage may represent a greater burden for low-income earners who need a larger portion of their income to cover essential living expenses.