17. LO1 The country of Boodang is the leading producer of sausage. Boodang imposes three taxes on its residents and companies to encourage production of sausage and dis- courage its consumption. Each tax applies as follows:
l Income tax—Rates apply to each taxpayer’s total income:
$ -0- –$ 50,000 5% of total income
$ 50,001–$200,000 $ 2,500 þ 10% of income in excess of $ 50,000
$200,001–$500,000 $17,500 þ 20% of income in excess of $200,000
$500,001 or more 40% of total income
In calculating total income, sausage workers are allowed to deduct 25% of their sal- aries. Companies that produce sausage are allowed to deduct 50% of their sales. No other deductions are allowed.
l Sausage tax—All sausage purchases are subject to a 100% of purchase price tax. Residents who consume less than 10 pounds of sausage per year are given a 50% rebate of the sausage tax they paid.
l Property tax—Taxes are based on the distance of a taxpayer’s residence from state- owned sausage shops per the following schedule:
0–2 miles $15,000 per mile
2 miles–5 miles $ 5,000 per mile
5 miles or more $ 2,000 per mile
Given the definitions in the chapter, are Boodang’s taxes progressive, proportional, or regressive? Evaluate and discuss each tax and the aspect(s) of the tax that you consid- ered in making your evaluation.
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