Explanation U.S. federal personal income tax system is progressive in nature. In other words, marginal tax rates rise with increase in income. Thus, the rich pay more tax by virtue of higher incomes and also higher marginal tax rates. The marginal tax rates as applicable for year 2018 on the incomes earned by individuals are shown below: Tax Rates Taxable Income Brackets 10% $0 - $9,525 12% $9526 - $38,700 22% $38701 - $82,500 24% $82,501 - $157,500 32% $157,501 - $200,000 35% $200,001 - $500,000 37% $500,001 and above Therefore, an individual whose earnings during the year are $ 50,000, will pay 10% tax on the first $9,525 of income, 12% on $ 29,175 ($ 38,700 - $ 9,525) of income and 22% on the remaining income of $ 11, 300 ($ 50,000 - $ 38,700). The marginal tax rate in this case is 22%. The total tax payable by the individual is calculated as follows: Thus, the individual who earns a salary of $ 50,000, pays a total personal income tax of $ 6939.50. Besides personal income tax, an individual also pay capital gain tax...

Economics Today: The Macro View Plus MyLab Economics with Pearson eText -- Access Card Package (19th Edition)

19th Edition

ISBN: 9780134641751

Author: Miller

Publisher: PEARSON

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Question

Definition Definition Tax imposed by the government on the "gain" or increase in the value of an asset at the time of its sale by the owner. Capital gain is computed based on the purchase price and sale price of the asset. If the sale price of the asset is more than the purchase price, there is a gain on the sale of asset. A tax is imposed on such gain in accordance with the applicable tax rates at the time of sale.

Chapter 6, Problem 6.2LO

To determine

The structure of the U.S. income tax system

Concept introduction:

Tax rate: It is the percentage of taxable income that an income earner pays to the government as tax.

Progressive taxation system: It is a taxation system in which tax rate rises with increase in taxable income.

Personal income tax: It is the tax imposed on the earnings of an individual.

Corporate income tax: It is the tax imposed on the earnings of a firm.

Expert Solution & Answer

Chapter 6 Solutions

Economics Today: The Macro View Plus MyLab Economics with Pearson eText -- Access Card Package (19th Edition)

Ch. 6 - Prob. 6.1LO Ch. 6 - Prob. 6.2LO Ch. 6 - Prob. 6.3LO Ch. 6 - Prob. 6.4LO Ch. 6 - Prob. aFCT Ch. 6 - Prob. bFCT Ch. 6 - Prob. cFCT Ch. 6 - Prob. dFCT Ch. 6 - Prob. eFCT Ch. 6 - Prob. 1CTQ

Ch. 6 - Prob. 2CTQ Ch. 6 - Prob. 1FCT Ch. 6 - Prob. 2FCT Ch. 6 - Prob. 1P Ch. 6 - Prob. 2P Ch. 6 - Prob. 3P Ch. 6 - Prob. 4P Ch. 6 - Prob. 5P Ch. 6 - Prob. 6P Ch. 6 - Prob. 7P Ch. 6 - Prob. 8P Ch. 6 - Prob. 9P Ch. 6 - Prob. 10P Ch. 6 - Prob. 11P Ch. 6 - Prob. 12P Ch. 6 - Prob. 13P Ch. 6 - Prob. 14P Ch. 6 - Prob. 15P

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