Chapter 1: Introduction to Taxation
1-2 The Structure of Tax Systems Most taxes have two components: a tax rate and a tax base (such as income, wages, value, or sales price). Tax liability is computed by multiplying these two components. 1-2a Tax Rates Tax rates can be progressive, proportional, or regressive. A tax rate is progressive if the rate increases as the tax base increases. The Federal income tax imposed on individuals is a progressive tax as indicated by the Tax Rate Schedules you can find inside the front cover of this text. Currently, the tax rates increase from 10 percent to 37 percent as taxable income (the tax base) increases. A tax is proportional if the rate of tax is constant, regardless of the size of the tax base. State retail sales taxes are proportional. Finally, regressive tax rates decrease as the tax base increases. Federal employment taxes , such as FICA and FUTA, can be termed regressive. For tax compliance and planning purposes, a taxpayer’s statutory, marginal, and average tax rates a...