6. The negative income tax Many economists believe that a more effective way to

Question

6. The negative income tax Many economists believe that a more effective way to supplement the income of the poor is through a negative income tax. Under this scheme, everyone reports his or her income to the government; individuals and families earning a higher income will pay a tax based on that income, while low-income individuals and families receive a subsidy, or negative tax. Assume that the only qualification required to receive a tax credit is low income Suppose the government uses the following equation to Taxes Owed = ( l/4 of Income)-$6,000 For each of the incomes listed in the following table, determine the tax liability for a family with that income level. (Note: If a family receives a subsidy because its income is too low, be sure to indicate the tax liability as negative.) Income Tax Liability 12,000

Explanation / Answer

Tax liability = Income/4 - 6000

The statement is false (Credit reduces by 1/4 = $ 0.25 for each additional dollar earned)

Income ($) Tax Liability ($) 0 -6000 12000 -3000 24000 0 60000 9000

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