The document compares three different tax structures - regressive, flat, and progressive taxes - across three hypothetical families with different incomes. A regressive tax takes the same percentage of income regardless of income level, whereas a progressive tax takes a higher percentage from those with higher incomes. A flat tax takes the same tax rate from all taxpayers. The document also explains how tax credits reduce the amount owed directly, while tax deductions reduce taxable income before calculating taxes owed.

1. Three Families
an introduction to taxes
by Just Economics

2. Tax Policy Does 3 Things
1. Redistributes wealth up or down the
income scale.
2. Influences private economic decisions by
creating incentives.
3. Raises money to be invested by the public.

3. Family
Regressive Flat Progressive
Income
$15,000 $3,000 (20%)
income left $12,000
$60,000 $3,000 (5%)
income left $57,000
$500,000 $3,000 (.6%)
income left $497,000

4. Family
Regressive Flat Progressive
Income
$15,000 $2,250 (15%)
income left $12,750
$60,000 $9,000 (15%)
income left $51,000
$500,000 $75,000 (15%)
income left $425,000

5. $440,000
x 35% Progressive Tax Layer Cake
32%
$154,000
of$500,00
+ $6,750
0
$160,750
$60,000-$500,000 +$0 +$6,750 35%
$45,000
11%
x 15%
of 15%
$15,000-$60,000 +$0
$60,000
$6,750 %
$0-$15,000 0%

6. Family
Regressive Flat Progressive
Income
$15,000 $0 (0%)
income left $15,000
$60,000 $6,750 (11%)
income left $53,250
$500,000 $160,750 (32%)
income left $339,250

7. Family
Regressive Flat Progressive
Income
$15,000 $3,000 (20%) $2,250 (15%) $0 (0%)
income left $12,000 $12,750 $15,000
$60,000 $3,000 (5%) $9,000 (15%) $6,750 (11%)
income left $57,000 $51,000 $53,250
$500,000 $3,000 (.6%) $75,000 (15%) $160,750 (32%)
income left $497,000 $425,000 $339,250

8. Family
Regressive Flat Progressive
Income
low-income same $ amount same tax rate lowest tax rate
middle-
same $ amount same tax rate middle tax rate
income
high-income same $ amount same tax rate highest tax rate

9. How Do Tax Credits Work?
income = $20,000
tax rate = 20%
$20,000 income
X 20% tax rate
$ 4,000 income tax
minus $ 1,000 tax credit
PAY $ 3,000 income tax

10. How Do Tax Deductions Work?
income = $20,000
tax rate = 20%
$20,000 income
minus $ 1,000 tax deduction
19,000 taxable income
X 20% tax rate
PAY $ 3,800 income tax