Question

Suppose the income tax rate is 0 percent on the first $10,000; 10 percent on the next $20,000; 20 percent on the next $20,000; 30 percent on the next $20,000; and 40 percent on all income above $70,000. Family A has income of $100,000 while Family B has income of $40,000. The marginal tax rates faced by the two families are?a. Family A: marginal20 percent; average10 percent; Family B: marginal40 percent; average23 percent. b. Family A: marginal20 percent; average15 percent; Family B: marginal40 percent; average20 percent. c. Family A: marginal10 percent; average10 percent; Family B: marginal30 percent; average30 percent. d. Family A: marginal20 percent; average20 percent; Family B: marginal40 percent; average40 percent.

Answer 1

Answer:

Family A's marginal tax rate = 40%, average tax rate = 24%

Family B's marginal tax rate = 20%, average tax rate = 10%

Explanation:

Family A's income = $100,000 ⇒ 40%,

total taxes paid = $0 + $2,000 + $4,000 + $6,000 + $12,000 = $24,000, average tax rate = $24,000 / $100,000 = 24%

Family B's income = $40,000 ⇒ marginal tax rate is 20%,

total taxes paid = $0 + $2,000 + $2,000 = $4,000, average tax rate = $4,000 / $40,000 = 10%

income                               marginal tax rate              

$0 - $10,000                                 0%                                  

$10,001 - $30,000                       10%                                

$30,001 - $50,000                      20%                              

$50,001 - $70,000                      30%                                

Above $70,001                            40%                                

Answer 2

Answer:

Explanation:

Family A's marginal tax rate = 40%, average tax rate = 24%

Family B's marginal tax rate = 20%, average tax rate = 10%