Question

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.

d. Is this a progressive tax?

Answer 1

Answer
a)
tax amount =sum of ( income in a bracket * tax rate of the bracket)
tax amount =10000*0+(20000-10000)*0.15+(30000-20000)*0.3+(50000-30000)*0.45
=13500
the tax amount is $13500
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b)
Marginal tax rate is the tax on an additiona dollar of income if the income is $50001 then the tax on the last dollar is the tax of the bracket in which the income is. ANd the income is in 45% tax bracket
marginal tax rate is 45%
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c)
Average tax rate =(tax amount /income)*100
=(13500/50000)*100
=27
the average tax rate is 27%
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d)
Yes as the average tax rate is lower than the marginal tax rate. The tax rate is increasing as the income increases is called progressive tax rate.