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5.1 Flat Tax & Political Philosophy

5.1 Flat Tax & Political Philosophy
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  • 17. Hawaii's General Excise Tax

    The state of Hawaii does not have a sales tax. Instead, it has a general excise tax. Unlike a sales tax, the general excise tax applies to businesses, not customers. Hawaii taxes retailers at a rate of 4% on gross income from business transactions.

    Complete the diagram. Explain your reasoning. (See Example 5.)

    • Worked-Out Solution
      1. The original price per lei is $15.
      2. The retailer adds $15 per lei for a price of $30 per lei.
      3. The retailer adds 4.166% to the price of each lei.

      4.The customer pays $31.25 per lei. Of this, $1.25 is the general excise tax.

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    | .  . ||  | ||__   | .--. ||  | ||__     | [] || 
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    `-`  `-`   `-----`  `-`  `-`   `-----`      -|_|| 
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  • 18. Hawaii's General Excise Tax

    The state of Hawaii does not have a sales tax. Instead, it has a general excise tax. Unlike a sales tax, the general excise tax applies to businesses, not customers. Hawaii taxes retailers at a rate of 4% on gross income from business transactions.

    Complete the diagram. Explain your reasoning. (See Example 5.)

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    |  --  //  / //\ \\ | |/\| || | || | ||    /   || 
    |  --  \\ |  ___  |||  /\  || | \\_/ ||   | [] || 
    |______// |_||  |_|||_// \_||  \____//     \__ || 
    `------`  `-`   `-` `-`   `-`   `---`       -|_|| 
                                                 `-`  
    
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  • 19. Hawaii's General Excise Tax

    The state of Hawaii does not have a sales tax. Instead, it has a general excise tax. Unlike a sales tax, the general excise tax applies to businesses, not customers. Hawaii taxes retailers at a rate of 4% on gross income from business transactions.

    A retailer purchases $150 worth of food. Draw a diagram showing a chain of events that could occur. Is the tax regressive, flat, or progressive? Explain. (See Example 5.)

    • Worked-Out Solution

      Here is one possible chain of events.

      1. The original price of the food is $150.
      2. To cover expenses and make a profit, the retailer doubles the price.
      3. The retailer adds 4.166% to the price.

      4.The customer pays $312.50 for the food. Of this, $12.50 is due to the general excise tax.

      This is a regressive tax.

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    |  /\  ||    | ||    | . \\   | ||__   |  /\  || 
    |_// \_||    |_||    |_|\_\\  |_____|| |_// \_|| 
    `-`   `-`    `-`'    `-` --`  `-----`  `-`   `-` 
                                                     
    
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  • 20. Hawaii's General Excise Tax

    The state of Hawaii does not have a sales tax. Instead, it has a general excise tax. Unlike a sales tax, the general excise tax applies to businesses, not customers. Hawaii taxes retailers at a rate of 4% on gross income from business transactions.

    A retailer purchases $70 worth of medicine. Draw a diagram showing a chain of events that could occur. Is the tax regressive, flat, or progressive? Explain. (See Example 5.)

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      ____      _____     _____    _    _    _    _   
     |  _ \\   |  ___||  / ____|| | || | || | \  / || 
     | |_| ||  | ||__   / //---`' | || | || |  \/  || 
     | .  //   | ||__   \ \\___   | \\_/ || | .  . || 
     |_|\_\\   |_____||  \_____||  \____//  |_|\/|_|| 
     `-` --`   `-----`    `----`    `---`   `-`  `-`  
                                                      
    
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  • 21. Hawaii's General Excise Tax

    A business passes on the general excise tax to the consumer as a charge that is a percent of the retail price. The charge is also subject to the general excise tax. The business cannot charge more than 4.166% of the retail price because consumer protection laws prohibit businesses from passing on an amount that exceeds the general excise tax on a transaction. Explain why the percent is 4.166%, not 4%. (See Example 5.)

    • Worked-Out Solution

      The retail price of an item is composed of 3 parts.

      The problem is that the state requires a general excise tax of 4% on the entire retail price. Let's look at an example.

      The general excise tax is

      So, by charging only 4% of $40, the retailer did not charge enough to cover what it has to pay in general excise tax, which is $1.66. To compensate for this, retailers are allowed to add 4.166% of their marked-up price.

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        ___    /_   _// | || | ||  |  ___||  |__  //  
       /   ||   -| ||-  | || | ||  | ||__      / //   
      | [] ||   _| ||_  | \\_/ ||  | ||__     / //__  
       \__ ||  /_____//  \____//   |_____||  /_____|| 
        -|_||  `-----`    `---`    `-----`   `-----`  
         `-`                                          
    
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  • 22. Oahu Surcharge

    The island of Oahu adds an extra 0.5% surcharge to the general excise tax to fund its mass transit system. Discuss ways in which the tax might help the people who are paying it. (See Example 6.)

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      / ___//  |  ___|| | || | ||  \ \\/ //  |  _ \\  
      \___ \\  | ||__   | '--' ||   \ ` //   | |_| || 
      /    //  | ||__   | .--. ||    | ||    | .  //  
     /____//   |_____|| |_|| |_||    |_||    |_|\_\\  
    `-----`    `-----`  `-`  `-`     `-`'    `-` --`  
                                                      
    
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