Reference no: EM133166736

Question - Suppose we develop a hybrid economic system for the United States, and workers can choose between two federal taxation plans. Under Plan A, workers pay a flat 5% income tax on their earnings, but they are not eligible for federal economic benefits like stimulus payments, subsidized health care, low-cost student loans or home mortgages, or unemployment benefits. Alternatively, workers pay a 30% income tax rate under Plan B, and these workers receive free health care, free education through the fourth year of college, and low-interest federal mortgages. All workers entering the labor force are under Plan A, but they can switch to Plan B at any time and must remain under Plan B if they choose this option. Is this hybrid tax system fair? Will this hybrid tax system promote income and wealth equality? What is the biggest potential problem with this system? Please use what we have learned about economic incentives to support your responses.