Question

Assume that your country’s income tax structure has the following tax rates: if your income is...

Assume that your country’s income tax structure has the following tax rates: if your income is $30,000 or less you pay no income tax; if your income is above $30,000, you pay 30 percent of the amount above $30,000. And so, for example, someone who earns $60,000 would pay 30% × ($60,000 − $30,000) = $9,000. Your marginal tax rate is defined as the taxes you pay if you earn one more dollar. Your average tax rate is defined as the total taxes you pay divided by your income. And so, to continue with this example, someone who earns $60,000 would have a marginal tax rate of 30 percent and an average tax rate of $9,000/$60,000 = 15%. You have three alternatives. You could not work at all, you could work half time, or you could work full time. If you do not work at all, you will earn $0; if you work half-time you will earn $30,000; and if you work full-time, you will earn $60,000. Any time you do not work, you can spend surfing. You love to surf: surfing full-time is worth $50,000 per year to you, surfing half-time is worth $25,000 per year to you, and not surfing at all is worth nothing to you. As you are making your decision about how much to work, should you pay attention to your average tax rate or to your marginal tax rate? Explain your answer carefully.

Homework Answers

Answer #1

Scenario 1 - No work
Income - 0
Tax - 0
Surfing Benefits - $50000
Total Benefits = 0 - 0 + 50000
= 50000

Scenario 2 - Half Time Work
Income - $30000
Tax - 0
Surfing Benefits - $25000
Total Benefits = 30000 - 0 + 25000
= 55000

Scenario 3 - Full Time Work
Income - $60000
Tax - $9000
Surfing Benefits - 0
Total Benefits = 60000 - 90000 + 0
= $51000

A rational person would make his decision considering the maximum benefits he receives from the choosen option.
If we compare the three scenarios then it can be seen that he will receive maximum benefits when he chooses to work half time. In that case, he has an income of $30000 but no tax and also has benefits of surfing worth of $25000.

Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
Suppose in Fiscalville there is a 0 percent tax on the first $10,000 of income, but...
Suppose in Fiscalville there is a 0 percent tax on the first $10,000 of income, but a 15 percent tax on earnings between $10,000 and $20,000 and a 30 percent tax on income between $20,000 and $30,000. Any income above $30,000 is taxed at 45 percent. Instructions: Round your answers to the nearest whole number. a. If your income is $50,000, how much will you pay in taxes? b. Determine your marginal tax rate. c. Determine your average tax rate....
if your household income is $60,000 and you are in the tax bracket of [$50,001-$75,000], with...
if your household income is $60,000 and you are in the tax bracket of [$50,001-$75,000], with tax rate listed as “25%”, your average tax rate is 25% your marginal tax rate is 25%
Government G Levies an income tax with the following rate structure: 6% income from 0 to...
Government G Levies an income tax with the following rate structure: 6% income from 0 to 30,000 10% income from 30001 to 70000 20% income from 70001 to 200000 28% income in excess of 200,000 A. Taxpayer A's taxable income is $187.600. compute A's tax and average tax rate. What is A's marginal tax rate? B. Taxpayers B's taxable income is $737,100. Compute B's tax and average tax rate. what is B's marginal tax rate? Round your percentage answers to...
Country A levies an individual income tax with the following rate structure: Percentage Rate Bracket 10...
Country A levies an individual income tax with the following rate structure: Percentage Rate Bracket 10 % Income from –0– to $20,000 15% Income from $20,001 to $75,000 25% Income from $75,001 to $160,000 30% Income in excess of $160,000 A. Mr. LV’s taxable income is $60,400. Compute his tax and average tax rate. What is Mr. LV’s marginal tax rate? B. Ms. JC’s taxable income is $320,400. Compute her tax and average tax rate. What is Ms. JC’s marginal...
You have 6K of spare pre-tax income that you're looking to invest for the future. Today...
You have 6K of spare pre-tax income that you're looking to invest for the future. Today you are in a combined federal+state marginal tax bracket of 20%. You are anticipating that in 40 years your marginal tax bracket on your retirement income will be 18%, and marginal long term gains bracket will be 12%. You decide to invest up to the maximum ($5500) in a Traditional IRA, pay taxes on the remaining $500 and invest it in a taxable account....
The nation of Fishkasar has a tax rate of 5% on the first 20,000 wallops (the...
The nation of Fishkasar has a tax rate of 5% on the first 20,000 wallops (the national currency) fo taxable income, then 20% on the next 30,000 wallops, then 50% on all taxable income above the 50,000 wallops. Fishkasar provides a 5,000-walop exemption per family member. a)Jamil's family has three members and earns 60,000 wallops per year. Calculate the family's marginal and average tax rates.
Suppose your firm earns $4 million in taxable income. What is the firm’s tax liability? What...
Suppose your firm earns $4 million in taxable income. What is the firm’s tax liability? What is the average tax rate? What is the marginal tax rate? explain step by step
1. Country A levies an individual income tax with the following rate structure: Percentage Rate Bracket...
1. Country A levies an individual income tax with the following rate structure: Percentage Rate Bracket 10 % Income from –0– to $20,000 15 Income from $20,001 to $75,000 25 Income from $75,001 to $160,000 30 Income in excess of $160,000 Required: Mr. Levi’s taxable income is $69,200. Compute his tax and average tax rate. What is Mr. Levi’s marginal tax rate? Ms. Jinn’s taxable income is $184,400. Compute her tax and average tax rate. What is Ms. Jinn’s marginal...
Your company generated $2,340,000 in taxable income in 2015. Assume that your average federal tax rate...
Your company generated $2,340,000 in taxable income in 2015. Assume that your average federal tax rate is 21% and your state tax rate is 7%. (a) What was your combined tax rate? (b) How much federal taxes did you owe? (c) How much state taxes did you owe?
Your company generated $2,340,000 in taxable income in 2018. Assume that your average federal tax rate...
Your company generated $2,340,000 in taxable income in 2018. Assume that your average federal tax rate is 21% and your state tax rate is 12%. (a) What was your combined tax rate?      (b) How much federal taxes did you owe? (c) How much state taxes did you owe?
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT