Question

# Income quintile: 2010 Income: Average Income: Share of Total Income (%): Highest fifth Above \$106,000 \$185,000...

Income quintile: 2010 Income: Average Income: Share of Total Income (%):

Highest fifth Above \$106,000 \$185,000 51.0

Second fifth \$65,000-106,000 \$84,000 23.0

Third fifth \$40,000-65,000 \$52,000 14.4

Fourth fifth \$21,000-40,000 \$31,000 8.4

Lowest fifth \$0-21,000 \$12,000 3.2

Using this chart, please find the implied tax (i.e., tax/average income) on the highest quintile. Please round to one decimal.

STEP 1

Calculate Average of average income for each income quintile -

Average = (\$185,000 + \$84,000 + \$52,000 + \$31,000 + \$12,000)/5

Average = \$364,000/5 = \$72,800

The average of average income for each income quintile is \$72,800.

STEP 2

Calculate amount of implied tax on highest quintile -

Implied tax = Average income of highest quintile - Average of average income for each income quintile

Implied tax = \$185,000 - \$72,800 = \$112,200

STEP 3

Calculate the implied tax rate -

Implied tax rate = (Implied tax/Average income) * 100

Implied tax rate = (\$112,200/\$185,000) * 100 = 60.6%

Thus,

The implied tax rate on the highest quintile is 60.6%.

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