(Tax Rates) Suppose taxes are related to income as follows Income Taxes $1,000 $
ID: 1177348 • Letter: #
Question
(Tax Rates) Suppose taxes are related to income as follows
Income Taxes
$1,000 $200
$2,000 $350
$3,000 $450
a. What percentage of income is paid in taxes at each level?
b. Is the tax rate progressive, proportional, or regressive?
c. What is the marginal tax rate on the first $1,000 of income? The second $1,000? The third $1,000?
(Government Revenue) What are the sources of government revenue in the United States?
Which types of taxes are most important at each level of governemnt? Which two taxes provide the most revenue to the federal government?
(Externalities) Suppose there is an external cost, or negative externality, associated with production of a certain good. Whats wrong with letting the market determine how much of this good will be produced?
Explanation / Answer
The average tax rate equals taxes divided by income. It is 20%, 18%, and 15% on income of $1,000, $2,000, and $3,000, respectively. ======================================================================================================================== The tax is regressive because the tax rate declines as income increases. ======================================================================================================================== The marginal tax rate equals the change in income divided by the change in taxes. It is 20%, 15%, and 10% on the first $1,000, $2,000, and $3,000, respectively. ========================================================================================================================Income , Taxes Average Tax Rate Marginal Tax Rate ======================================================================================================================== 0 0 ======================================================================================================================== $1,000 $200 20% 20% ======================================================================================================================== $2,000 $350 18% 15% ======================================================================================================================== $3,000 $450 15% 10%
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