### 5.1 Flat Tax & Political Philosophy

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• 23. Deductions and Credits

Use the information below. Assume the country has a flat income tax rate of 14%.

A tax deduction is an amount that is subtracted from your gross income before the tax rate is applied to determine your income tax liability. A tax credit is an amount that is subtracted from your income tax liability after the income tax rate has been applied.

A taxpayer has a gross income of \$45,000 and tax deductions of \$10,000. How much income tax does the taxpayer owe?

• Worked-Out Solution

Here is one way to calculate the income tax.

The income tax is 14% of the taxable income.

The taxpayer owes \$4900 in income tax.

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``` __   _     _____    ______    _    _     ______
| || | ||  |  ___|| |      \\ | || | ||  /_____//
| '--' ||  | ||__   |  --  // | || | ||  `____ `
| .--. ||  | ||__   |  --  \\ | \\_/ ||  /___//
|_|| |_||  |_____|| |______//  \____//   `__ `
`-`  `-`   `-----`  `------`    `---`    /_//
`-`
```
• 24. Deductions and Credits

Use the information below. Assume the country has a flat income tax rate of 14%.

A tax deduction is an amount that is subtracted from your gross income before the tax rate is applied to determine your income tax liability. A tax credit is an amount that is subtracted from your income tax liability after the income tax rate has been applied.

A taxpayer has a gross income of \$65,600 and tax deductions of \$12,000. How much income tax does the taxpayer owe?

These comments are not screened before publication. Constructive debate about the information on this page is welcome, but personal attacks are not. Please do not post comments that are commercial in nature or that violate copyright. Comments that we regard as obscene, defamatory, or intended to incite violence will be removed. If you find a comment offensive, you may flag it.

```   _____    ______   _    _    _    _
/ ___//  /_   _// | |  | || | || | ||   ____
\___ \\   -| ||-  | |/\| || | || | ||  |    \\
/    //   _| ||_  |  /\  || | \\_/ ||  | [] ||
/____//   /_____// |_// \_||  \____//   |  __//
`-----`    `-----`  `-`   `-`   `---`    |_|`-`
`-`
```
• 25. Deductions and Credits

Use the information below. Assume the country has a flat income tax rate of 14%.

A tax deduction is an amount that is subtracted from your gross income before the tax rate is applied to determine your income tax liability. A tax credit is an amount that is subtracted from your income tax liability after the income tax rate has been applied.

A taxpayer has a taxable income of \$68,500 and tax credits of \$3000. How much income tax does the taxpayer owe?

• Worked-Out Solution

Because this taxpayer has no tax deductions, the taxable income is \$68,500.

The income tax is 14% of the taxable income.

The taxpayer has a tax credit of \$3000.

So, the taxpayer owes \$6590 in income tax.

These comments are not screened before publication. Constructive debate about the information on this page is welcome, but personal attacks are not. Please do not post comments that are commercial in nature or that violate copyright. Comments that we regard as obscene, defamatory, or intended to incite violence will be removed. If you find a comment offensive, you may flag it.

``` _    _    __   __   _    _    __   __   __   _
| \  / ||  \ \\/ // | \  / ||  \ \\/ // | || | ||
|  \/  ||   \ ` //  |  \/  ||   \ ` //  | '--' ||
| .  . ||    | ||   | .  . ||    | ||   | .--. ||
|_|\/|_||    |_||   |_|\/|_||    |_||   |_|| |_||
`-`  `-`     `-`'   `-`  `-`     `-`'   `-`  `-`

```
• 26. Deductions and Credits

Use the information below. Assume the country has a flat income tax rate of 14%.

A tax deduction is an amount that is subtracted from your gross income before the tax rate is applied to determine your income tax liability. A tax credit is an amount that is subtracted from your income tax liability after the income tax rate has been applied.

A taxpayer has a gross income of \$76,400, tax deductions of \$11,000, and tax credits of \$2000. How much income tax does the taxpayer owe?

These comments are not screened before publication. Constructive debate about the information on this page is welcome, but personal attacks are not. Please do not post comments that are commercial in nature or that violate copyright. Comments that we regard as obscene, defamatory, or intended to incite violence will be removed. If you find a comment offensive, you may flag it.

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

```
• 27. Deductions and Credits

Use the information below. Assume the country has a flat income tax rate of 14%.

A tax deduction is an amount that is subtracted from your gross income before the tax rate is applied to determine your income tax liability. A tax credit is an amount that is subtracted from your income tax liability after the income tax rate has been applied.

Which saves a taxpayer more, a tax deduction of \$1000 or a tax credit of \$1000? Explain your reasoning.

• Worked-Out Solution

A tax credit of \$1000 saves the taxpayer \$1000 in income tax.

A tax deduction of \$1000 only saves the taxpayer 14% of \$1000 or \$140 in income tax.

So, the tax credit saves the taxpayer much more.

These comments are not screened before publication. Constructive debate about the information on this page is welcome, but personal attacks are not. Please do not post comments that are commercial in nature or that violate copyright. Comments that we regard as obscene, defamatory, or intended to incite violence will be removed. If you find a comment offensive, you may flag it.

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

```
• 28. Comparing Income Tax

Sketch a graph comparing income tax as a percentage of income for a 14% flat tax on all income and a 14% flat tax on all income over \$12,000. Explain how tax deductions can make a flat tax more progressive.

These comments are not screened before publication. Constructive debate about the information on this page is welcome, but personal attacks are not. Please do not post comments that are commercial in nature or that violate copyright. Comments that we regard as obscene, defamatory, or intended to incite violence will be removed. If you find a comment offensive, you may flag it.

``` _____       ___      ______     ___       _____
|  __ \\    / _ \\   /_____//   / _ \\    / ___//
| |  \ ||  / //\ \\  `____ `   | / \ ||   \___ \\
| |__/ || |  ___  || /___//    | \_/ ||   /    //
|_____//  |_||  |_|| `__ `      \___//   /____//
-----`   `-`   `-`  /_//       `---`   `-----`
`-`
```
• 29. Negative Income Tax

Use the information below. Assume the country has a flat income tax rate of 14%.

Under a negative income tax system, deductions are subtracted from your gross income to determine your taxable income. If the difference is positive, the flat income tax rate is applied to determine how much income tax you owe. If the difference is negative, you receive a check from the government equal to the absolute value of the difference times the flat tax rate. Let the deduction for an adult be \$14,000 and the deduction for a dependent be \$7000.

A family of 2 adults and 2 dependents earns \$40,000.

1. Does the family owe income tax or receive a check from the government? What is the amount?
2. What is the cutoff amount for the family to qualify for a check from the government?
• Worked-Out Solution

The family has the following deductions.

To determine the income tax, subtract the total deduction from the gross income.

1. The family will receive a check from the government for

2. The cutoff amount for the family is \$42,000. If the family earns more than \$42,000, it will owe income tax.

These comments are not screened before publication. Constructive debate about the information on this page is welcome, but personal attacks are not. Please do not post comments that are commercial in nature or that violate copyright. Comments that we regard as obscene, defamatory, or intended to incite violence will be removed. If you find a comment offensive, you may flag it.

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

```
• 30. Negative Income Tax

Use the information below. Assume the country has a flat income tax rate of 14%.

Under a negative income tax system, deductions are subtracted from your gross income to determine your taxable income. If the difference is positive, the flat income tax rate is applied to determine how much income tax you owe. If the difference is negative, you receive a check from the government equal to the absolute value of the difference times the flat tax rate. Let the deduction for an adult be \$14,000 and the deduction for a dependent be \$7000.

A family of 2 adults and 3 dependents earns \$72,000.

1. Does the family owe income tax or receive a check from the government? What is the amount?
2. What is the cutoff amount for the family to qualify for a check from the government?

These comments are not screened before publication. Constructive debate about the information on this page is welcome, but personal attacks are not. Please do not post comments that are commercial in nature or that violate copyright. Comments that we regard as obscene, defamatory, or intended to incite violence will be removed. If you find a comment offensive, you may flag it.
```  _____    __   __  __    __   _    _   __    __