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Consider a society with only two people, one with an income of $200,000 and the other with an income of $5,000. Assume that under the current tax system the rich pays $60,000 and the poor pays $1,200.
a. Calculate the tax rate for each person
b. To raise funds for a new bridge, suppose that congress passes a law that increases the rich person's tax by $2,000 and the poor person's taxes by $275. Calculate the new tax rates for each person.
c. How does this policy changes tax progressivity?
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