Suppose tax payers are required to pay a base of $50 plus 50 percent on any...

Suppose tax payers are required to pay a base of $50 plus 50 percent on any income over $200. Suppose further that the taxing authority wishes to raise taxes by $30 for incomes of $300.

a) Before the tax change, how much tax in paid by someone making $500?

b) If the base tax of $50 is to remain unchanged, what will the new marginal tax rate have to be?

Expert Solution

A.

Tax to be paid = 50 + (500-200)*50%

Tax to be paid = $200

B.

Marginal tax rate = 30/(500-300)

Marginal tax rate = 15%

Rahul Sunny answered 2 years ago

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