How do I Teach Tax Rates in the Classroom?
- 1). Create a pie chart based on the percentage of taxpayers paying the majority of taxes collected in this country. This can be found at the Congressional Budget Office's website. The top 20 percent of the wealthiest taxpayers pay more than 80 percent of the nation's tax burden. The top 1 percent pay over half of the nation's tax burden. Highlight the historical bar chart illustrating the decreases in taxes paid by the other 80 percent of the taxpayers and the clear increase for the top 20 percent in 2009.
Ask the students what potential problems may occur when such a disproportional amount of the tax burden is paid by such a small number of individuals. Use the "Ten Men Go To Dinner" illustration (described in a later step) to teach how the current tax rates work in an easy to understand parable. - 2). Divide the class into four "teams." Team one represents the poor; team two, the lower and middle class; team three, the upper class. Choose one or two to represent the wealthiest 1 percent. Teams one through three should make up 80 percent of the class members. Illustrate the proportional tax rates by assigning an income to each team member. Have your students write checks, using blank note cards, to equal the percentage of their taxes based on their assigned income.
With a flat or proportional tax each person will pay something toward the tax needs of the "nation" you have created in the classroom. Naturally, the wealthiest will pay the most in taxes and the poor the least. Debate the pros and cons of such a system emphasizing the economic affects of increasing tax rates on a nation without regard to personal income. - 3). Change the illustration to the progressive tax rate method. Use the tax tables in existence now for each team. Team one will be taxed at 0 percent, team two at 14 percent, team three at 28 percent and team four at 35 percent. Total all amounts of income and taxes paid. Compare the total of taxes collected in the progressive method to the total collected with the flat tax rate.
- 4). Explain marginal tax rates to the students. Using marginal tax rates mean that the income of the wealthiest 1 percent is taxed at the percentage of each tax bracket up to that bracket's maximum. Any income earned over the $311,950 maximum on the tax tables are taxed at 38.6 percent. In 1978, the marginal tax rates were over 70 percent on income earned over $250,000.
Ask team four to stand up and come to the front of the room. Discuss the effect of the increased tax burden under a progressive system on the wealthy business owner. Ask each team member what they would do as business owners if 70 percent of money they made over $250,000 were taken in taxes. Most students will give the same answer that they would make sure they didn't make over that amount. - 5). Ask the other students, "What would you do as a business owner if 70 percent of all your income over $250,000 was taken from you?" Discuss what the economic result of their decision would be on the rest of the taxpayers. Some of the topics that you may touch on include a reduction in collected taxes, unemployment, or the effect on an economy when the wealthy reduce their taxable income to avoid paying the increased percentages.
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