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7 September, 21:13

Suppose the income tax rate is 0 percent on the first $10,000; 10 percent on the next $20,000; 20 percent on the next $20,000; 30 percent on the next $20,000; and 40 percent on all income above $70,000. Family A has income of $100,000 while Family B has income of $40,000. The marginal tax rates faced by the two families are? a. Family A: marginal20 percent; average10 percent; Family B: marginal40 percent; average23 percent. b. Family A: marginal20 percent; average15 percent; Family B: marginal40 percent; average20 percent. c. Family A: marginal10 percent; average10 percent; Family B: marginal30 percent; average30 percent. d. Family A: marginal20 percent; average20 percent; Family B: marginal40 percent; average40 percent.

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  1. 7 September, 21:30
    0
    Family A's marginal tax rate = 40%, average tax rate = 24%

    Family B's marginal tax rate = 20%, average tax rate = 10%

    Explanation:

    Family A's income = $100,000 ⇒ 40%,

    total taxes paid = $0 + $2,000 + $4,000 + $6,000 + $12,000 = $24,000, average tax rate = $24,000 / $100,000 = 24%

    Family B's income = $40,000 ⇒ marginal tax rate is 20%,

    total taxes paid = $0 + $2,000 + $2,000 = $4,000, average tax rate = $4,000 / $40,000 = 10%

    income marginal tax rate

    $0 - $10,000 0%

    $10,001 - $30,000 10%

    $30,001 - $50,000 20%

    $50,001 - $70,000 30%

    Above $70,001 40%
  2. 7 September, 22:21
    0
    Family A's marginal tax rate = 40%, average tax rate = 24%

    Family B's marginal tax rate = 20%, average tax rate = 10%
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