Question

Taxpayer Salary Total Tax Mae $ 12,000 $ 1,140 Pedro $ 26,000 ??? a. What is the minimum tax that Pedro should pay to make the tax structure vertically equitable based on the tax rate paid? (Round your final answer to nearest whole dollar amount.) b. This would result in what type of tax rate structure?

Answer 1

Requirement (a):

Tax paid by Mae = $1,140

Tax rate = (Tax paid by Mae / Mae Salary) * 100

= ($1,140 / $12,000) * 100

= 95%

Minimum tax that Perdo should pay = 9.5% of His salary Income

= 9.5% of $26,000

= $2,470

Minimum tax to be paid by Pedro to make the tax structure vertically equitable based on the tax rate paid is $2,470

Requirement (b):

This would result in proportional taxation structure because both the individuals are paying same percentage of their income as income tax.