an introduction to taxes

Three Families

by Just Economics

Tax Policy Does 3 Things

3. Raises money to be invested by the public.

1. Redistributes wealth up or down the income scale.

2. Influences private economic decisions by creating incentives.

Family Income

Regressive Flat Progressive

$15,000income left

$60,000income left

$500,000income left

$3,000 (20%)$12,000

$3,000 (5%)$57,000

$3,000 (.6%)$497,000

Family Income

Regressive Flat Progressive

$15,000income left

$60,000income left

$500,000income left

$2,250 (15%)$12,750

$9,000 (15%)$51,000

$75,000 (15%)$425,000

0%$0-$15,000

15%%$15,000-$60,000 +$0

35%$60,000-$500,000 +$6,750+$0$45,000x 15%

$6,750

11%of

$60,000

$440,000x 35%

$160,750

$154,000+ $6,750

32%of$500,00

0

Progressive Tax Layer Cake

Family Income

Regressive Flat Progressive

$15,000income left

$60,000income left

$500,000income left

$0 (0%)$15,000

$6,750 (11%)$53,250

$160,750 (32%)$339,250

Family Income

Regressive Flat Progressive

$15,000income left

$3,000 (20%)$12,000

$2,250 (15%)$12,750

$0 (0%)$15,000

$60,000income left

$3,000 (5%)$57,000

$9,000 (15%)$51,000

$6,750 (11%)$53,250

$500,000income left

$3,000 (.6%)$497,000

$75,000 (15%)$425,000

$160,750 (32%)$339,250

Family Income

Regressive Flat Progressive

low-income

middle-income

high-income

same $ amount

same $ amount

same $ amount

same tax rate

same tax rate

lowest tax rate

same tax rate middle tax rate

highest tax rate

How Do Tax Credits Work?

minus

income = $20,000tax rate = 20%

X

$20,000 income

$ 1,000 tax credit

20% tax rate

$ 4,000 income tax

PAY $ 3,000 income tax

How Do Tax Deductions Work?

minus

income = $20,000tax rate = 20%

X

$20,000 income

$ 1,000 tax deduction

19,000 taxable income

20% tax rate

PAY $ 3,800 income tax