7. A tax that is proportional has a rate that is constant regardless of the given income level. Types of proportional taxes include most excise taxes, general sales taxes, and employment taxes (FICA and FUTA). All of these taxes are a fixed percentage and are not subject to change. A tax is progressive, however, if a higher tax rate coincides with a higher tax base. Examples of this include the Federal income tax, Federal gift and estate taxes, and most state income tax rate structures. Those that make a higher income are given a higher tax rate on their federal income tax than those who make a lower income.
23.
a. The “piggyback” approach is when states impose a flat rate on adjusted gross income as used for Federal income tax purposes. It makes use of what was done for Federal income tax purposes. However, some states will “decouple” from this piggyback approach to avoid major revenue losses. Congress will sometimes pass tax deductions, and often times states cannot afford to take the revenue loss from these deductions.
b. There are very few states left that allow for a deduction of Federal income taxes. Alabama, Iowa, and Louisiana are the only three that allow for a full deduction of these taxes, and various other states allow for partial deductions of the tax.
c. Most states allow for their residents some form of tax credit for income taxes paid to other states.
47.
a. Revenue neutrality. Revenue neutrality means that for every new tax law that lowers taxes, there must be off-setting revenue to make up for the loss. This does not mean, however, that an individual’s overall taxes will stay the same; it could possibly mean that one taxpayer’s liability will decrease, but this would result in another taxpayer’s liability to increase.
b. Pay-as-you-go, or “paygo”. This concept is the same as revenue neutrality in which the taxes for one individual may