In: Finance
Suppose taxpayers are required to pay a base tax of $50 plus 30 percent on any income over $100, as in the initial tax system B in the table below. Suppose further that the taxing authority wishes to raise by $40 the taxes of people with incomes of $200.
Tax System B | |||||
Initial Tax Schedule | Tax on Income of $200 | Tax rate | Disposable Income | ||
Average | Marginal | ||||
$50 + 30% of income over $100 | $80 | 40% | 30% | $120 |
(a) If marginal tax rates are to remain unchanged, what will the
new base tax have to be?
Instructions: Enter your response as a whole
number.
$
(b) If the base tax of $50 is to remain unchanged, what will the
marginal tax rate have to be?
%
a) If marginal tax rate remains unchanged, the base tax have to be increase by from $ 50 to $ 90 (50+40).
Tax System B (New) | |||||
Initial Tax Schedule | Tax on Income of $200 | Tax rate | Disposable Income | ||
Average | Marginal | ||||
$90 + 30% of income over $100 | $120 | 60% | 30% | $80 |
b) If base tax remains at $ 50, marginal tax rate need to be increase by 40% to 70% to increase total tax payable by $ 40 for people with income of $ 200.
Tax System B (New) | |||||
Initial Tax Schedule | Tax on Income of $200 | Tax rate | Disposable Income | ||
Average | Marginal | ||||
$50 + 70% of income over $100 | $120 | 60% | 70% | $80 |