Question

33) If you faced the following tax schedule and had taxable income of $27,000 . . .

Taxable Income    Marginal Rate

0 - 10,000    10%

10,000 - 25,000 20%

25,000 + 50%

Your Tax would be_________(neither is close, $5,000 +/- a bit)

This System is a________(flat tax system, progressive tax system, regressive tax system)

Your Average Tax Rate, if we assume all your income is taxable, would be?________(50%, 10%, 5.4%, 12.78%, 20%, 18.52%)

Answer 1

Taxable Income = $27,000

Tax = 10% * ($10,000 - $0) + 20% * ($25,000 - $10,000) + 50% * ($27,000 - $25,000) = 0.10 * $10,000 + 0.20 * $15,000 + 0.50 * $2,000 = $1,000 + $3,000 + $1,000 = $5,000 (1)

The tax rate increases as the taxable income increases. Therefore, the given tax system is a progressive tax system(2).

(Note: In a flat tax system, the tax rate remains the same at all levels of income; In a regressive tax system, the tax rate decreases with an increase in income)

Average Tax rate = (Tax/Taxable Income) * 100 = ($5,000/$27,000) * 100 = 18.52%(3)