Worker Annual income ($) Income tax paid ($) Mira, laboratory technician 54 000 13 500 Ravi, company director 180 000 63 000 Table 1 gives income-tax rates ...
Question 1 Report
| Worker | Annual income ($) | Income tax paid ($) |
|---|---|---|
| Mira, laboratory technician | 54 000 | 13 500 |
| Ravi, company director | 180 000 | 63 000 |
Table 1 gives income-tax rates and tax paid by two workers in Ardin. The government says that its tax system should raise revenue while reducing income inequality.
Table 1
(a) Which worker pays the higher proportion of income in tax? [1]
(b) Calculate Mira's disposable income. [1]
(c) Explain how progressive taxation may reduce inequality. [2]
Answer Details
(a) Ravi pays the higher proportion of income in tax.
Mira pays \(13\,500/54\,000 = 25\%\), while Ravi pays \(63\,000/180\,000 = 35\%\). [1]
(b) Disposable income is income after direct taxes have been paid:
\[\$54\,000 - \$13\,500 = \$40\,500\]
Mira’s disposable income is $40 500. [1]
(c) Under progressive taxation, higher-income workers pay a larger percentage of their income in tax. The revenue can fund transfer payments or public services used by lower-income households. This narrows the difference between incomes and can reduce inequality. [2]
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