Question

Congress would like to increase tax revenues by 17 percent. assume that the average taxpayer in the united states earns $52,000 and pays an average tax rate of 20 percent.
a. if the income effect is in effect for all taxpayers, what average tax rate will result in a 17 percent increase in tax revenues? (round your answer to 2 decimal places.)

Answer 1

Calculation of average tax rate that will result in a 17 percent increase in tax revenues:

Currently, the average taxpayer in the united states earns $52,000 and pays an average tax rate of 20 percent, so the average tax revenue is 52000*20% = $10,400

If Congress wants to increase tax revenues by 17 percent, then the average tax revenue shall be 10400+(10400*17%) = $12,168

Hence average tax rate that will result in a 17 percent increase in tax revenues shall be = 12168 / 52000 = 0.234 = 23.40%