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### 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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• 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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