Question

The total of income taxes paid is 1.4 trillion. Thirty-seven percent of income taxes paid were paid by group A. The budget deficit is 0.9 trillion dollars. The current income tax rate for group A is 35 percent. If we decide to close the budget deficit by raising taxes only on group A what would be the new tax rate on income for Group A?

Answer 1

GIven: Total income taxes paid = 1.4 trillion

37% of it were paid by group A.

The current income tax rate fro group A is 35%.

Deficit is 0.9 trillion dollar.

To find: New tax rate for group A to close budget deficit.

Sol. Let new income tax rate for group A be x.

Currently they are paying 37% of 1.4 trillion which is 35 % of their income let I.

=>37% of 1.4 trillion = 35 % of I

=> 37 * 40 billion = I

=> 1480 billion = I

=> I = 1.48 trillion

So Let x be new rate

=> new rate * I = old taxes + 0.9 trillion

=>1.48x/100 = 0.37 *1.4 +0.9

=> 1.48x = 37*1.4 + 90

=> x= 141.8/1.48

=> x= 95.81

So new income tax rate for group A shoul be 95.81 % to close the budget deficit.