Suppose an income tax is imposed that takes $1,000 from someone with an income o

Question

Suppose an income tax is imposed that takes $1,000 from someone with an income of $20,000; $4,000 from someone with an income of $30,000; and $12,000 from someone with an income of $80,000. This tax would be classified as

regressive.

proportional.

progressive.

a flat tax.

How is a 401(k) plan taxed?

A 401(k) plan is taxed when workers withdraw money from the account to pay for retirement expenses.

401(k) contributions are taxed when workers make their contributions, and grow tax-free until retirement.

Contributions to a 401(k) plan are taxed at the time the contribution is made, and again when the money is withdrawn from the account after retirement.

A 401(k) plan is not taxed at all.

Explanation / Answer

Question 1: Option 3: Progressive

Explanation: In progressive taxation system, the tax rate increases with increase in income. The % of tax paid by first, second and the third person are (1,000/20,000 * 100 = 5%), (4,000/30,000 * 100 = 13.33%), and (12,000/80,000 * 100 = 15.00%). We can see that the tax rate increases with income. So, the taxation system is progressive.

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