Song earns $118,000 taxable income as an interior designer and is taxed at an average rate of 20 percent (i.e., $23,600 of tax). Answer the questions below assuming that Congress increases the income tax rate such that Song's average tax rate increases from 20 percent to 25 percent. Required: A. What will happen to the government's tax revenues if Song chooses to spend more time pursuing her other passions besides work in response to the tax rate change and therefore earns only $88,500 in taxable income? B. What is the term that describes this type of reaction to a tax rate increase? C. What types of taxpayers are likely to respond in this manner?
Song earns $118,000 taxable income as an interior designer and is taxed at an average rate of 20 percent (i.e., $23,600 of tax). Answer the questions below assuming that Congress increases the income tax rate such that Song's average tax rate increases from 20 percent to 25 percent. Required: A. What will happen to the government's tax revenues if Song chooses to spend more time pursuing her other passions besides work in response to the tax rate change and therefore earns only $88,500 in taxable income? B. What is the term that describes this type of reaction to a tax rate increase? C. What types of taxpayers are likely to respond in this manner?
Chapter3: Income Sources
Section: Chapter Questions
Problem 34P: How much taxable income should each of the following taxpayers report? a. Kimo builds custom...
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Transcribed Image Text:Song earns $118,000 taxable income as an
interior designer and is taxed at an average rate
of 20 percent (i.e., $23,600 of tax). Answer the
questions below assuming that Congress
increases the income tax rate such that Song's
average tax rate increases from 20 percent to
25 percent.
Required:
A. What will happen to the government's tax
revenues if Song chooses to spend more time
pursuing her other passions besides work in
response to the tax rate change and therefore
earns only $88,500 in taxable income?
B. What is the term that describes this type of
reaction to a tax rate increase?
C. What types of taxpayers are likely to respond
in this manner?
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