Question ID:PT72 S1 Q26 Passage:Passage AIn 1994, Estonia became the first country to introduce a "flat tax" on personal and corporate income. Income is taxed at a single uniform rate of 26 percent: no schedule of rates, no deductions. So far eight countries have followed Estonia's example. An old idea that for decades elicited the response, "Fine in theory, just not practical in the real world," seems to be working as well in practice as it does on the blackboard.Practical types who said that flat taxes cannot work offer a further instant objection, once they are shown such taxes working, namely, that they are unfair. Enlightened countries, it is argued, have "progressive" tax systems, requiring high-income earners to forfeit a bigger share of their incomes in tax than low-income earners have to pay. A flat tax seems to rule this out in principle.Not so. A flat tax on personal incomes combines a threshold (that is, an exempt amount) with a single rate of tax on all income above it. The extent to which such a system is progressive can be varied within wide limits using just these two variables. Under the systems operating in most developed countries, the incentives for high-income earners to avoid tax (legally or otherwise) are enormous; and the opportunities to do so, which arise from the very complexity of the codes, are commensurately large. So it is unsurprising that high-income earners usually pay about as much tax under new flat-tax regimes as they would have paid under the previous codes.Passage BA lot of people don't understand graduated, as opposed to "flat," taxes. They think that if you make more money you pay a higher rate on your entire earnings, which seems unfair. Actually, graduated progressive taxes treat all taxpayers equally. Every taxpayer pays the same rate on equivalent layers of income. People in higher brackets don't pay the higher rate on their entire income, only on the portion of income over a specified amount. People, not dollars, are treated equally.All people are created equal, but not all dollars are created equal. Earnings of the working poor go almost entirely for survival expenses such as food, shelter, and clothing. At that level, every dollar is critical; even a small difference causes tremendous changes in quality of life. Middle-income earners are still very conscious of expenses, but have much greater flexibility in absorbing small fluctuations in income.Even some of the flat tax proposals recognize this, and want to exempt a primary layer from the tax system. So, since they recognize that survival dollars are different from discretionary dollars, why go suddenly from one extreme (paying no taxes) to the other (paying the top rate)? Since flat tax proposals are supposed to bring in the same total amount of tax revenue, if the working poor are going to pay less and the high-income earners are going to pay less, it is naturally going to fall on the middle class to make up the difference. Stem:The authors of the two passages would be most likely to disagree over whether Correct Answer Choice:BChoice A:a flat tax system can be progressive Choice B:high-income earners would pay less under a flat tax system than under a graduated progressive system Choice C:flat tax systems are fine in theory but cannot be put into practice Choice D:graduated progressive systems make higher-income taxpayers pay a higher rate on their entire earnings Choice E:all of an individual's income should be subject to taxation