   Chapter 3, Problem 3.10PA ECON: MICRO4 (New, Engaging Titles...

4th Edition
William A. McEachern
ISBN: 9781285423548

Solutions

Chapter
Section ECON: MICRO4 (New, Engaging Titles...

4th Edition
William A. McEachern
ISBN: 9781285423548
Textbook Problem

(Tax Rates) Suppose taxes are related to income as follows:Income Taxes$1,000$200$2,000$350$3,000$450a. 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? To determine The taxes for various income. Introduction: Progressive tax rate: It is defined as the system wherein taxes increase as the income increases, wherein high-income taxpayers pay more taxes as compared to the low-income taxpayers. Regressive tax rate: It is defined as the system wherein the taxes decrease as the income increases, wherein high-income taxpayers pay fewer taxes as compared to low-income taxpayers Proportionate tax rate: It is defined as the system wherein a flat tax rate is charged to all taxpayers irrespective of the income earned by them. Marginal tax rate: The tax paid on an additional dollar of the income is termed as the Marginal tax rate. In other words, it is an incremental tax paid on the incremental income Explanation a. Percentage of income paid as taxes at each level: •2001000×100=20% •3502000×100=17.5% •4503000×100=15% b. The percentages for income levels of$1,000, $2,000, and$3,000 are 20 percent, 17.5 percent, and 15 percent, respectively.

c

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