Reference no: EM132473175
Any income tax schedule embodies two types of tax rates: average tax rates and marginal tax rates.
a. The average tax rate is defined as total taxes paid divided by income. For the proportional tax system presented in Table 7, what are the average tax rates for people earning $50,000, $100,000, and $200,000? What are the corresponding average tax rates in the regressive and progressive tax systems?
b. The marginal tax rate is defined as the extra taxes paid on additional income divided by the increase in income. Calculate the marginal tax rate for the proportional tax system as income rises from $50,000 to $100,000. Calculate the marginal tax rate as income rises from $100,000 to $200,000. Calculate the corresponding marginal tax rates for the regressive and progressive tax systems.
c. Describe the relationship between average tax rates and marginal tax rates for each of these three systems. In general, which rate is relevant for someone deciding whether to accept a job that pays slightly more than her current job? Which rate is relevant for judging the vertical equity of a tax system?
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