Question

Congress would like to increase tax revenues by 11.5 percent. assume that the average taxpayer in the united states earns $62,000 and pays an average tax rate of 10 percent.
a. if the income effect is in effect for all taxpayers, what average tax rate will result in a 11.5 percent increase in tax revenues?

Answer 1

An increase of 11.5 percent is the same as multiplying by 1.115. Since the current rate is 10 percent, an 11.5 percent increase would be:
10 percent x 1.115 = 11.15 percent.