Suppose two individuals, one with a high income and one with a low income, are subject to a progressive tax system. What is the difference in their tax burdens?

• A. The high-income individual pays a higher proportion of their income in taxes than the low-income individual.
• B. The low-income individual pays a higher proportion of their income in taxes than the high-income individual.
• C. Neither individual pays any taxes under a progressive tax system.
• D. Both individuals pay the same proportion of their income in taxes.

Answer: (A)

Verified step by step guidance

1. Step 1: Understand the definition of a progressive tax system. In a progressive tax system, the tax rate increases as the taxable income increases. This means individuals with higher incomes pay a larger percentage of their income in taxes compared to those with lower incomes.
2. Step 2: Identify the tax burden for each individual. The tax burden is the proportion of income paid in taxes, which can be expressed as the average tax rate: \(\text{Average Tax Rate} = \frac{\text{Total Taxes Paid}}{\text{Income}}\).
3. Step 3: Compare the average tax rates of the high-income and low-income individuals. Since the tax system is progressive, the high-income individual faces higher marginal tax rates on additional income, leading to a higher average tax rate.
4. Step 4: Conclude that the high-income individual pays a higher proportion of their income in taxes than the low-income individual, reflecting the progressive nature of the tax system.
5. Step 5: Recognize that the other options (low-income paying higher proportion, no taxes paid, or equal proportions) contradict the definition of a progressive tax system and are therefore incorrect.