Read chapter 2 of Slemrod & Bakija and answer the following questions 11) [This
ID: 1162541 • Letter: R
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Read chapter 2 of Slemrod & Bakija and answer the following questions
11) [This question is very important.] What is the difference between a marginal tax rate and an average tax rate? If someone says "I'm in the 35% bracket," are they referring to a marginal or average rate? 11) Suppose a large C corporation (such as facebook) earned $20,000,000 in 2015. What would its marginal tax rate be? Now suppose there are two shareholders of facebook stock (among many others): Mark Zuckerberg, who founded facebook and is worth billions, and your teacher, who makes less than $20,000/year and has a few hundred dollars worth of facebook stock. If the profits of facebook are taxed at the same rate regardless of whether these profits go to Zuckerberg or Imboden, is this a violation of vertical or horizontal equity? According to the ability-to-pay principle, should the profits that go to Zuckerberg and Imboden be taxed differently? 12) How wealthy do you have to be to pay estate tax when you die (technically, your estate pays the tax)? Why do you think some politicians like calling this the "death tax?" Approximately what percentage of Americans think they will have to pay the estate tax (you may have to Google this last part)?Explanation / Answer
11)Marginal tax rate is the rate of tax charged on the income exceeding the non taxable value. Average tax rate is the total tax paid divided by total income earned. If someone says I'm in 35% bracket it means that they are referring to marginal tax rate.
11).According to the US corporate marginal tax rates in 2015 any corporation will be charged 35% on their net income. If the profits of Facebook and Imboden are taxed at the same rate regardless of whether these profits go to Zuckerberg or Imboden it is a violation of vertical equity as they must be taxed based on their income. Yes according to the ability-to-pay principle, the profits that go to Zuckerberg must be taxed differently because Zuckerberg has more ability to pay as he earns more income than Imboden.
12) In the US, as of 2018, you need to have atleast $11.18 million worth of wealth in order to be considered for payment of estate tax for which the tax rate is 40%. Politicians call it the death tax as you have to pay a certain amount based on your wealth after your death. In other words, the government basically taxes your estate when you die.
Approximately 30% of Americans think they will have to pay estate tax. (Source: Huffingtonpost)
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