Question

What will happen to the governmentâs tax revenues if Song chooses to spend more time pursuing her other passions besides work in response to the tax rate change and therefore earns only $75,000 in taxable income?

Answer 1

Answer:

Government's tax revenues would decrease by $1,250

Explanation:

Please refer the complete question below

Song earns $100,000 taxable income as an interior designer and is taxed at an average rate of 20 percent (i.e., $20,000 of tax). Answer the questions below assuming that Congress increases the income tax rate such that Song's average tax rate increases from 20 percent to 25 percent.   What will happen to the government’s tax revenues if Song chooses to spend more time pursuing her other passions besides work in response to the tax rate change and therefore earns only $75,000 in taxable income

If Song opts for pursuing his other passions he will end up earning $75,000 and therefore since the tax rate is now 25% he will have to pay $18,750 ($75,000 x 25%) as against the $20,000 ($100,000 x 20%) taxed previously and hence government's tax revenues would decrease by $1,250 ($20,000 - $18,750).