MINDTAP Frum Cengage omework: Fiscal Policy and the Federal Budget (Ch 11) Back
ID: 1143353 • Letter: M
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MINDTAP Frum Cengage omework: Fiscal Policy and the Federal Budget (Ch 11) Back to Assignment Attempts: Average: /S 2. Income taxes The following table shows income tax rates in Econoland. Annual Income Up to $50,000 From $50,001 to $75,000 Over $75,000 Tax Rate 10% 20% 30% This is an example of a income tax. Larry, a resident of Econoland, currently works 20 hours a week and earns an annual income of ss0,000. After paying incom Y per year. ks an additional 10 hours a week (30 hours a week total), his annual income will be $75,000. After paying income per year. In other words, by working an additional 10 hours per week, Larry will receive an additional If Larry wor If Larry works 10 more hours in a week (40 hours a week total), his annual income will further increase to $100,000. After payir will receive would receive if he works only 30 hours a week per year. In other words, by working 10 more hours per week, Larry will receive As Larry works more, the additional amount he receives from working 10 more hours which means his cos lype here to searchExplanation / Answer
This is evidently progressive taxation, since the percentage of tax rises as the income increases. Popularly followed in the United States of America.
1) Larry pays an income tax of $5,000 (10% of $50,000)
2) Larry now pays income tax of $15,000 (20% of $75,000). When Larry worked for 20 hours a week, he recieved $45,000 after taxes ($50,000-$5000). Larry works 30 hours a week, now, and gets $60,000 ($75000-$15000), which means, Larry earns an additional income of $15,000.
3) If Larry earns $100,000 a year, he pays $30,000 in income tax. Hence, he will be left with a disposable income of $70,000. Thus, he will be making an extra $10,000 if he works 40 hours a week, instead of 30 hours a week.
4) For 20 hours a week:
Number of hours worked in a year= 52*20= 1040
Hourly payment= $50000/1040= $48.07
If he works 10 hours extra, he will make:
Number of extra hours worked in a week= 10*52= 520
Thus, extra money earned per year by working ten hours a wek= $48.07*520= $24,996.4 (approximate $25,000)
To prove the extra $25,000: $50,000 (for 20 hours a week) + $25,000 (for additional 10 hours a week)= 75,000 [money that Larry recieves for working 30 (20+10) hours a week]
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