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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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