Question

During​ 2018, the Smiths and the Joneses both filed joint tax returns. For the tax year ended December​ 31, 2018, the​ Smiths' taxable income was

$106,000​,

and the Jones had total taxable income of

$53,000.

a. Using the federal tax rates given in Table​ 1.2,

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​, for married couples filing joint​ returns, calculate the taxes for both the Smiths and the Joneses.

b. Calculate and compare the ratio of the​ Smiths' to the​ Joneses' taxable income and the ratio of the​ Smiths' to the​ Joneses' taxes. What does this demonstrate about the federal income tax​ structure?

a. Using the federal tax rates given in Table 1.2 for married couples filing joint​ returns, the taxes for the Smiths is

​$nothing.

​ (Round to the nearest​ dollar.)

B.

   Taxable Income
Tax Rates   Joint Returns
10%   $0 to $19,050
12%   $19,051 to $77,400
22%   $77,401 to $165,000
25%   $165,001 to $315,000
32%   $315,001 to $ 400,000
35%   $400,001 to $600,000
37%   Over $600,000

Answer 1

The​ Smiths

Taxable income= $106,000​

Tax amount as per the slabs= (106000-77400)*22%+(77400-19050)*12%+ 19050*10%

= $15199

Jones

Taxable income= $53,000

Tax amount as per the slabs= (53000-19050)*12%+ 19050*10%

= $5979

Ratio of Smiths’ to the​ Joneses' taxable income= 106000/53000 = 2

Ratio of the​ Smiths' to the​ Joneses' taxes = 15199/5979 = 2.54

This demonstrates that the tax structure is regressive in nature. Higher the taxable income, higher the tax rates and the amount of tax is more than proportionate to the increase in incomes.