Question

Calculate the average tax rate for the following based on the following information: For income $0...

Calculate the average tax rate for the following based on the following information: For income $0 - $10, 000 the marginal tax rate is 12% For income $10,000 - $20,000, 15% For income $20,000 - $50,000, 11% For income above $50,000, 19% (1) Calculate the average tax rate for a person whose income is $35,000. (2) Calculate the average tax rate for a person whose income is $65,000. (3) Decide whether it is a regressive tax or a progressive tax based on your answers for (1) and (2).

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Answer #1

1) Total tax paid = (10,000 * 0.12) + (10,000 * 0.15) + (15,000 * 0.11) = 1200 + 1500 + 1,650 = $4,350

Average tax rate = (4,350 / 35,000) * 100 = 12.43%

2) Total tax paid = (10,000 * 0.12) + (10,000 * 0.15) + (30,000 * 0.11) + (15,000 * 0.19)

                          = 1200 + 1500 + 3,300 + 2,850 = $8,850

Average tax rate = (8,850 / 65,000) * 100 = 13.61%

3) It is a progressive tax. When average tax rate increases as income increases, it is called progressive tax.

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