Which of the following taxes uses a proportional tax rate structure?

• A. A progressive income tax where higher incomes are taxed at higher rates
• B. An excise tax that applies only to luxury goods
• C. A regressive sales tax where lower incomes pay a higher percentage of their income
• D. A flat income tax where all individuals pay 15% of their income

Answer: (D)

Verified step by step guidance

1. Understand the definition of a proportional tax rate structure: it is a tax system where the tax rate remains constant regardless of the level of income or value being taxed.
2. Analyze each option by identifying whether the tax rate changes with income or remains constant:
3. For a progressive income tax, the tax rate increases as income increases, so it is not proportional.
4. An excise tax on luxury goods applies only to specific goods and does not have a constant rate across all incomes, so it is not proportional.
5. A regressive sales tax means lower incomes pay a higher percentage of their income, so the tax rate effectively decreases as income increases, which is not proportional.
6. A flat income tax where all individuals pay the same percentage (e.g., 15%) of their income has a constant tax rate, which matches the definition of a proportional tax.