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

Question

7. 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 compute a family’s tax liability:

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

(Dollars per year)

(Dollars per year)

True or False: If a family is currently receiving a tax credit, the credit is reduced by $0.33 for each additional dollar earned until the family reaches an income of $20,000 and the credit becomes $0.

True

False

Explanation / Answer

ncome

Tax Liability

(Dollars per year)

(Dollars per year)

5000

False for every dollar earned, credit is reduced by 0.5 for each dollar eaned.

ncome

Tax Liability

(Dollars per year)

(Dollars per year)

0 -10000 10,000 -5000 20,000 0 30,000

5000

False for every dollar earned, credit is reduced by 0.5 for each dollar eaned.

Related Questions

Navigate

• Browse (All)
• Browse 7
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.