Question

Margo and Jonah have two children, ages 13 and 17, whom they support and who live with them the entire year. Neither child earns any income. Margo and Jonah’s modified AGI is $411,000. What is their total child tax credit and additional dependent credit? A) $1,450 B) $2,900 C) $4,000 D) $1,950

A presidential candidate proposes replacing the current income tax system with a flat income tax system. The flat tax would have a proportional tax rate on income that is the same for all income levels. Which one of the following statements is correct?

		A) The change would replace a regressive tax with a progressive tax.
		B) The flat income tax increases vertical equity because wealthy taxpayers will pay more proportionally than lower income taxpayers.
		C) The flat income tax system would be more complex to calculate than the current income tax system
		D) The flat income tax decreases vertical equity since taxpayers with higher income would not necessarily pay more in taxes proportionally than those with lower income.

Answer 1

For children upto the age of 17, parents are allowed a Child Tax Credit of $2000\-

and for children who are 17 and older, a dependent credit of $ 500 is allowed,

How ever if the MAGI is more than $200000 per person, ($400000 if filing jointly), such credit would be reduced by $ 50 for every $ 1000 exceeding the 200000/400000 threshold.

Total Credit = 2000+500 =2500

deduction as MAGI is more than the threshold = 11*50 = 550

Deduction available = 2500-550 =$ 1950.

A progressive tax structure is where the strata of people who are making more and more money should be tax a higher percentage of their total Income.

If a flat structure is imposed, then a fixed a percentage of everyone's income no matter how less or how much they are making will be taxed, which will adversely effect the lower income group as they cannot afford to part with any of the small income they make.

Ans is D)