In the text, find the answers to the following questions

1. What categories of taxes do you know?

2. What is a regressive tax?

3. What is a relationship between the tax rate and the taxpayer's ability to pay? How can you explain it?

4. What can you say about the average tax rate in case of regressive taxes?

5. What regressive taxes do you know? What are their peculiarities?

6. What is a proportional tax?

7. What is known about the rate of taxation in case of a proportional tax?

8. What merits and drawbacks of proportional taxes do you know?

9. What is a progressive tax?

10. How much money should people with lower and higher income pay according to a progressive tax?

11. What is the main principle of progressive taxes?

 

  Exercise 3. Find a word in the text that matches each definition below. The words appear in order.

1. Force (something unwelcome or unfamiliar) to be accepted or put in place.                                                                                         __________

2. The result obtained by adding several amounts together and then dividing this total by the number of amounts.                                                                                                                                                 __________

3. Despite the prevailing circumstances.                                        __________       

4. (three words) The percentage of tax which a taxpayer pays at the top rate which he therefore pays on every further pound or dollar he earns.                                                                                                  ___________

5. (two words) A tax on wage payments.                             ___________

6. (two words) A system under which a government pays money regularly to certain groups of people, for example the sick, the unemployed, or those with no other income.                                                          ___________

7. (two words) A tax based on the selling price of goods.             ___________

8. (two words) A tax with a single rate.                                         ___________

9. (two words) The amount of tax that a person or business must pay in a particular period.                                                                    ___________

10. (two words) The set of incomes on which direct taxes, and transactions on which indirect taxes are levied.                                                   ___________

 

Exercise 4. Sentence completion.

Read the text and complete it with the following words.

imposed tax incidence             propensity       progressive tax

burden   marginal rate           carried out      flat

income substitution effect

 

A regressive tax is a tax (1) ________ in such a manner that the tax rate  decreases as the amount subject to taxation increases. "Regressive" describes a distribution effect on income or expenditure, referring to the way the rate progresses from high to low, so that the average tax rate exceeds the (2) ________.

In terms of individual income and wealth, a regressive tax imposes a greater (3) ______ (relative to resources) on the poor than on the rich — there is an inverse relationship between the tax rate and the taxpayer's ability to pay as measured by assets, consumption, or income. These taxes tend to reduce the (4) ________ of people with higher ability-to-pay, as they shift the incidence disproportionately to those with lower ability-to-pay. The regressivity of a particular tax can also factor the (5) _______ of the taxpayers to engage in the taxed activity relative to their resources (the demographics of the tax base). In other words, if the activity being taxed is more likely to be (6) ______ by the poor and less likely to be carried out by the rich, the tax may be considered regressive.

To measure the effect, the income elasticity of the good being taxed as well as the (7) _______________ must be considered. The measure can be applied to individual taxes or to a tax system as a whole; a year, multi-year, or lifetime. The opposite of a regressive tax is a (8) ___________, in which the average tax rate increases as the amount subject to taxation increases. In between is a (9) ______ or proportional tax, where the tax rate is fixed as the amount subject to taxation increases.

 

Exercise 5. Text completion.

(a) Read this article about a regressive tax in which some headlines are missing. Discuss with a partner what headlines you would expect to find in each gap.

 

What are the Pros and Cons of a Regressive Tax?

1.______________________

Advocates of sales, excise, and property taxes argue that these types of tax are fundamentally better than other types of tax and that the use of such taxes may have a positive impact on the behavior of members of society. Opponents of this type of taxation focus on the issue of fairness as well, but define fairness differently, and generally believe that ability to pay should be the main standard used in assigning the burden of taxes, rather than consumption or ownership. Opponents of these taxes will also often assert that this type of tax encourages the stratification of society, thereby weakening the middle class.

 

2.____________________

A regressive tax falls most heavily, in percentage terms, on people with the least income. A sales tax is one very common regressive tax. People in higher income brackets tend to spend a smaller percentage of their income on purchases impacted by sales taxes and, therefore, pay a smaller overall percentage of their incomes in sales tax than do people in lower income brackets. Excise taxes, such as the gasoline tax, and property taxes are also regressive. Progressive taxes, on the other hand, fall more heavily on people with larger incomes.

        

3.______________________

One common argument used to support these types of taxes is that they are fairer. In this view, the tax falls equally on all purchases. Anyone who purchases a particular taxable item pays the same amount.

 

4.______________________

Another argument, often used to support regressive tax, is that such taxes foster desirable economic behavior. Excise taxes, such as taxes on cigarettes and alcohol, are meant to have an impact on behavior, and these taxes, together with the sales tax, may curb consumption of certain goods and services. In this case, they can be used to urge people to avoid dangerous behaviors but encourage savings, which are typically excluded from taxation under this sort of tax plan.

 

5._______________________

Opponents of regressive tax often share the conviction that fairness in taxation is important but define fairness differently than those who support them. They generally believe that it is more important to avoid imposing tax burdens that impose an undue hardship than to avoid imposing taxes at unequal rates. In this view, progressive taxes, which fall most heavily on people with the greatest ability to pay, are fairer, as they cause less economic hardship. A further argument against any kind of regressive tax hinges on the importance of maintaining a strong middle class. Supporters of this position typically hold that tax policy should be designed to foster the growth of a middle class by making it relatively easy to rise into that class but relatively difficult to become tremendously wealthy. A regressive policy, they believe, leads to the opposite situation and makes it easier to leave the middle class in either direction.

 

(b)  Match these headlines (A-E) with the gaps in the article (1-5).

A           The fairness of the tax

B           Regressive tax

C           The cons of a regressive tax

D           The heaviest tax on low-income earners

E           The pros of a regressive tax

 

Exercise 6.