Question

In: Economics

Suppose in Fiscalville there is a 5 percent tax on the first $10,000 of income, but...

Suppose in Fiscalville there is a 5 percent tax on the first $10,000 of income, but a 15 percent tax on earnings between $10,000 and $20,000 and a 25 percent tax on income between $20,000 and $30,000. Any income above $30,000 is taxed at 35 percent.

Instructions: Round your answers to the nearest whole number.

a. If your income is $40,000, how much will you pay in taxes?

    

b. Determine your marginal tax rate.

    

c. Determine your average tax rate.

    

d. Is this a progressive tax?

      (Click to select)  No  Yes

Solutions

Expert Solution

Solution:-

Income = $40,000

(a) Calculate the Tax on Income:-

Tax Payable = (10,000 * 5%) + (20,000 – 10,000 * 15%) + (30,000 – 20,000 * 25%) + (40,000 – 30,000 * 35%)

                      = 500 + 1500 + 2500 + 3500

                      = 8000

(b) The marginal tax rate = 35%

(c) Calculate Average Tax Rate:-

Average Tax Rate = Total Tax Paid / Total Income

                                = $8000 / $40,000

                                = 20%

(d) Yes it is progressive tax.

Rahul Sunny answered 7 months ago
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