Question

Here's a slightly more realistic example

• You live in a town with an affluent side and a not-so-affluent side.
• The folks on the affluent side have annual incomes in the $80,000 to $120,000 range while the not-so-affluent side ranges from $20,000 to $40,000.
• Therefore, the median and the mean of the affluent demographic is roughly $100,000 while that of the not-so-affluent side is roughly $30,000.
• The number of families in the affluent demographic is slightly larger than the number of families on the other side. As such, the median family income is about $100,000 for the entire town while the mean income is closer to $65,000.

Due to mismanagement of funds and a complete lack of fiscal oversight, a significant tax levy is necessary to close a budget shortfall and prevent default on several municipal loans. The town council seeks to impose a universal, one-time tax levy on all families to fix the budget problem. They propose a one-time tax of $5,000 on each family in the town. The politicians state, “The Median Family Income in this town is $100,000. Surely, a one-time 5% tax is a small price to pay to shore up our town’s funds and fix things once and for all”.

Let's say you're a member of the town council, and a TV reporter asks you the following questions:

1. What percent of an affluent family's earnings is the $5,000 tax?
2. What percent of a not-so-affluent family's earnings is the $5,000 tax?
3. Is the tax fair to all families in the town?
4. What is misleading about the politician's statement, if anything?

Answer 1

INFORMATION WE HAVE:-

AFFLUENT:-

1. affluent side have annual incomes in the $80,000 to $120,000 range
2. median and the mean of the affluent demographic is roughly $100,000
3. No. of Families are larger

NOT-SO-AFFLUENT:-

1. not-so-affluent side annual incomes ranges from $20,000 to $40,000.
2. median and the mean of the not-so-affluent side is roughly $30,000.
3. No. of Families are lower than affluent

TOWN:-(consits of both affluent & not so affluent)

1. the median family income is about $100,000 for the entire town
2. the mean income is closer to $65,000.

TAX:-

1. one-time tax of $5,000 on each family

QUESTIONS TO ANSWER:-

• What percent of an affluent family's earnings is the $5,000 tax?

Answer:=0% affluent families have annual earning of $5,000 (Based on statement 1 & 2 of affluent section)

• What percent of a not-so-affluent family's earnings is the $5,000 tax?

Answer:=0% not so affluent families have annual earning of $5,000 (Based on statement 1 & 2 of not so affluent section)

• Is the tax fair to all families in the town?

Answer:=No, as no of families of allfluent section is larger and hence mean salary of town is baised.

• What is misleading about the politician's statement, if anything?

Answer:= It is inaapropriate to conclude tax value based on entire town's median salary , as biasedness due to more no of obs(in this case families) that belong to higher earning band hence 5% of tax for lower earning band will be higher in percentage.

% tax based on annual income of each houselhold/ 2 sections of town can be used to recover taxes.