Question 1

The income tax requires that taxpayers pay 10percent on the first $40,000 of income and 20 percent on all income over $40,000. Emily paid $9,000 in taxes. What were her marginal and average tax rates?
A)20 percent and 13.8 percent, respectively
B)20 percent and 15 percent, respectively
C)10 percent and 13.8 percent respectively
D)10 percent and 15 percent respectively

Accepted Answer

The answer of The income tax requires that taxpayers pay...

Question 2

Table 12-4 
-Refer to Table 12-4. What is the marginal tax rate for a person who makes $35,000?
A)25%
B)30%
C)40%
D)60%

Accepted Answer

The answer of Table 12-4 
-Refer to Table 12-4. What...

Question 3

Suppose the government taxes 30 percent of the first $70,000 and 50 percent of all income above $70,000. For a person earning $100,000, the marginal tax rate is
A)30 percent, and the average tax rate is 50 percent.
B)30 percent, and the average tax rate is 36 percent.
C)50 percent, and the average tax rate is 40 percent.
D)50 percent, and the average tax rate is 36 percent.

Accepted Answer

For a person earning $100,000, the first $70,000 will be taxed at 30%, which is $21,000. The remaining $30,000 will be taxed at 50%, which is $15,000. Therefore, the total tax payable will be $36,000. The marginal tax rate is the tax rate on the last dollar earned, which in this case is 50%. The average tax rate is the total tax paid divided by the total income, which is (36,000/100,000) or 36%. Therefore, the correct answer is D.

Question 4

Which of the following statements is correct?
A)The average tax rate gauges the sacrifice made by a taxpayer, whereas the marginal tax rate gauges the distortion of taxes on consumer decisions.
B)The marginal tax rate gauges the sacrifice made by a taxpayer, whereas the average tax rate gauges the distortion of taxes on consumer decisions.
C)The average tax rate measures how much the tax system discourages people from working.
D)The marginal tax rate measures total taxes paid divided by total income.

Accepted Answer

The statement in option A correctly explains the difference between the average tax rate and the marginal tax rate. The average tax rate measures the overall sacrifice made by a taxpayer, while the marginal tax rate measures the impact of taxes on incremental decisions made by a taxpayer.

Question 5

Table 12-4 
-Refer to Table 12-4. What is the average tax rate for a person who makes $130,000?
A)30%
B)40%
C)50%
D)60%

Accepted Answer

To calculate the average tax rate, we need to divide the total tax paid ($58,000) by the taxable income ($145,000 - $15,000 = $130,000) which gives us an average tax rate of 40%. Therefore, the best choice is B.

Question 6

Suppose the government taxes 25 percent of the first $60,000 of income and 40 percent of all income above $60,000. For a person earning $200,000, the marginal tax rate is
A)25 percent, and the average tax rate is 32.5 percent.
B)25 percent, and the average tax rate is 36 percent.
C)40 percent, and the average tax rate is 32.5 percent.
D)40 percent, and the average tax rate is 36 percent.

Accepted Answer

For a person earning $200,000, the first $60,000 will be taxed at 25 percent and the remaining $140,000 will be taxed at 40 percent. This gives a total tax of $60,000 x 0.25 + $140,000 x 0.4 = $24,000 + $56,000 = $80,000. The marginal tax rate is the rate at which the last dollar of income is taxed, which in this case is 40 percent. The average tax rate is the total tax paid as a percentage of total income, which in this case is $80,000/$200,000 = 0.4 or 40 percent. Therefore, the correct answer is D.

Question 7

Pat calculates that for every extra dollar she earns, she owes the government 40 cents. Her total income now is $44,000, on which she pays taxes of $11,000. Determine her average tax rate and her marginal tax rate.
A)Her average tax rate is 40 percent and her marginal tax rate is 25 percent.
B)Her average tax rate is 40 percent and her marginal tax rate is 40 percent.
C)Her average tax rate is 25 percent and her marginal tax rate is 25 percent.
D)Her average tax rate is 25 percent and her marginal tax rate is 40 percent.

Accepted Answer

Average tax rate = Total taxes paid / Total income 
= $11,000 / $44,000 
= 0.25 or 25%
 
Marginal tax rate refers to the tax rate applicable on the next dollar of income. As Pat owes 40 cents on every extra dollar earned, her marginal tax rate would be 40%. So, the correct option is (D).

Question 8

The income tax requires that taxpayers pay 10 percent on the first $50,000 of income and 20 percent on all income over $50,000. Andy paid $9,000 in taxes. What were his marginal and average tax rates?
A)20 percent and 13 percent, respectively
B)20 percent and 15 percent, respectively
C)10 percent and 13 percent respectively
D)10 percent and 15 percent respectively

Accepted Answer

The answer of The income tax requires that taxpayers pay...

Question 9

Table 12-4 
-Refer to Table 12-4. What is the marginal tax rate for a person who makes $50,000?
A)25%
B)28%
C)40%
D)60%

Accepted Answer

The answer of Table 12-4 
-Refer to Table 12-4. What...

Question 10

Suppose that the government taxes income in the following fashion: 30 percent of the first $20,000, 50 percent of the next $30,000, and 60 percent of all income over $50,000. Ted earns $40,000, and Robin earns $60,000. Which of the following statements is correct?
A)Ted's marginal tax rate is 60 percent, and his average tax rate is 50 percent.
B)Ted's marginal tax rate is 50 percent, and his average tax rate is 40 percent.
C)Robin's marginal tax rate is 50 percent, and her average tax rate is 45 percent.
D)Robin's marginal tax rate is 60 percent, and her average tax rate is 40 percent.

Accepted Answer

For Ted:
- The first $20,000 is taxed at 30%, which equals $6,000.
- The remaining $20,000 is taxed at 50%, which equals $10,000.
- His total taxes paid are $16,000.
- His average tax rate is $16,000 / $40,000 = 40%.
- His marginal tax rate is the tax rate on the next dollar earned, which is 50%.

For Robin:
- The first $20,000 is taxed at 30%, which equals $6,000.
- The next $30,000 is taxed at 50%, which equals $15,000.
- The remaining $10,000 is taxed at 60%, which equals $6,000.
- Her total taxes paid are $27,000.
- Her average tax rate is $27,000 / $60,000 = 45%.
- Her marginal tax rate is the tax rate on the next dollar earned, which is 60%.

Therefore, choice B is correct, as it accurately represents Ted's marginal and average tax rates.

Question 11

Table 12-4 
-Refer to Table 12-4. What is the marginal tax rate for a person who makes $130,000?
A)30%
B)40%
C)50%
D)60%

Accepted Answer

The answer of Table 12-4 
-Refer to Table 12-4. What...

Question 12

Suppose the government taxes 10 percent of the first $40,000 of income and 20 percent of all income over $40,000. Shahina paid $10,000 in taxes. What were her marginal and average tax rates?
A)20 percent and 15 percent, respectively
B)20 percent and 14 percent, respectively
C)10 percent and 15 percent respectively
D)10 percent and 14 percent respectively

Accepted Answer

Let x be the amount of income Shahina earned over $40,000, then her taxable income would be $40,000 + x. According to the tax system, her tax payment would be:

0.1 * $40,000 + 0.2 * x = $10,000

Simplifying the equation, we get:

x = $30,000

So Shahina earned $70,000 in total.

Her average tax rate is:

$10,000 / $70,000 = 0.143 or 14.3%

Her marginal tax rate is the tax rate that would apply to an extra dollar of income. Since she falls in the second tax bracket, her marginal tax rate is 20%.

Question 13

Suppose that the government taxes income in the following fashion: 20 percent of the first $50,000, 40 percent of the next $50,000, and 60 percent of all income over $100,000. Marshall earns $200,000, and Lily earns $600,000. Which of the following statements is correct?
A)Marshall's marginal tax rate is higher than Lily's marginal tax rate.
B)Marshall's average tax rate is higher than his marginal tax rate.
C)Lily's average tax rate is higher than her marginal tax rate.
D)Lily's average tax rate is higher than Marshall's average tax rate.

Accepted Answer

Lily's income places her in the highest tax bracket for a portion of her income, which increases her average tax rate compared to Marshall, who has a portion of his income taxed at lower rates. Marshall's marginal tax rate (the rate on the last dollar earned) is the same as Lily's if we only consider the given tax brackets, but Lily's average tax rate (total tax paid divided by total income) is higher because a larger portion of her income is subject to the highest tax rate.

Question 14

Table 12-5 
-Refer to Table 12-5. What is the marginal tax rate for a person who makes $37,000?
A)9.25%
B)20%
C)25%
D)40%

Accepted Answer

According to the table, the marginal tax rate for someone making $37,000 is 20%. This means that for every additional dollar they earn, they will pay 20 cents in taxes. This is the best choice as it directly answers the question asked.

Question 15

The income tax requires that taxpayers pay 10percent on the first $40,000 of income and 20 percent on all income over $40,000. Karen paid $6,000 in taxes. What were her marginal and average tax rates?
A)20 percent and 12 percent, respectively
B)20 percent and 15 percent, respectively
C)10 percent and 12 percent respectively
D)10 percent and 15 percent respectively

Accepted Answer

Karen's marginal tax rate is 20 percent because this is the rate she pays on any income over $40,000. To find her average tax rate, we calculate the total tax paid ($6,000) as a percentage of her total income. Since she paid $6,000, which is $2,000 more than what she would have paid on the first $40,000 (10% of $40,000 = $4,000), she must have earned $10,000 at the 20% rate (since $2,000 is 20% of $10,000). Therefore, her total income was $50,000 ($40,000 + $10,000), and her average tax rate is $6,000/$50,000 = 12%.

Question 16

Maurice faces a progressive federal income tax structure that has the following marginal tax rates: 0 percent on the first $10,000, 10 percent on the next $10,000, 15 percent on the next $10,000, 25 percent on the next $10,000, and 50 percent on all additional income. In addition, he must pay 5 percent of his income in state income tax and 15.3 percent of his labor income in federal payroll taxes. Maurice earns $60,000 per year in salary and another $10,000 per year in non-labor income. What is his average tax rate?
A)17.19 percent
B)46.69 percent
C)48.87 percent
D)56.01 percent

Accepted Answer

The answer of Maurice faces a progressive federal income tax...

Question 17

Costas faces a progressive federal income tax structure that has the following marginal tax rates: 0 percent on the first $10,000, 10 percent on the next $10,000, 15 percent on the next $10,000, 25 percent on the next $10,000, and 50 percent on all additional income. In addition, he must pay 5 percent of his income in state income tax and 15.3 percent of his labor income in federal payroll taxes. Costas earns $70,000 per year in salary and another $20,000 per year in non-labor income. What is his average tax rate, and what is his marginal tax rate on his salary?
A)His average tax rate is 17.19 percent, and the marginal tax rate on his salary is 55 percent.
B)His average tax rate is 50.23 percent, and the marginal tax rate on his salary is 70.3 percent.
C)His average tax rate is 53.63 percent, and the marginal tax rate on his salary is 70.3 percent.
D)His average tax rate is 55.79 percent, and the marginal tax rate on his salary is 70.3 percent.

Accepted Answer

The answer of Costas faces a progressive federal income tax...

Question 18

Suppose the government taxes 30 percent of the first $70,000 and 50 percent of all income above $70,000. For a person earning $200,000, the marginal tax rate is
A)30 percent, and the average tax rate is 50 percent.
B)30 percent, and the average tax rate is 43 percent.
C)50 percent, and the average tax rate is 40 percent.
D)50 percent, and the average tax rate is 43 percent.

Accepted Answer

The marginal tax rate is the tax rate applied to the income earned in the highest tax bracket. For an income of $200,000, the income above $70,000 will be taxed at a rate of 50 percent. Therefore, the marginal tax rate is 50 percent.

The average tax rate is the total tax paid divided by the total income earned. To calculate the average tax rate, we need to calculate the total tax paid.

For the first $70,000: 
Tax paid = 0.3 x $70,000 = $21,000

For the amount above $70,000: 
Tax paid = 0.5 x ($200,000 - $70,000) = $65,000

Total tax paid = $21,000 + $65,000 = $86,000

Average tax rate = Total tax paid / Total income = $86,000 / $200,000 = 0.43 or 43 percent

Therefore, the answer is D.

Question 19

The income tax requires that taxpayers pay 10percent on the first $40,000 of income and 20 percent on all income over $40,000. Karen paid $6,000 in taxes. What were her marginal and average tax rates?
A)20 percent and 12 percent, respectively
B)20 percent and 15 percent, respectively
C)10 percent and 12 percent respectively
D)10 percent and 15 percent respectively

Accepted Answer

Karen's marginal tax rate is 20 percent because this is the rate she pays on any income over $40,000. To find her average tax rate, we calculate the total tax paid ($6,000) as a percentage of her total income. Since she paid $6,000, which is $2,000 more than what she would have paid on the first $40,000 (10% of $40,000 = $4,000), she must have earned $10,000 at the 20% rate (since $2,000 is 20% of $10,000). Therefore, her total income was $50,000 ($40,000 + $10,000), and her average tax rate is $6,000/$50,000 = 12%.

Question 20

Pat calculates that for every extra dollar she earns, she owes the government 33 cents. Her total income now is $35,000, on which she pays taxes of $7,000. Determine her average tax rate and her marginal tax rate.
A)Her average tax rate is 33 percent and her marginal tax rate is 20 percent.
B)Her average tax rate is 20 percent and her marginal tax rate is 33 percent.
C)Her average tax rate is 20 percent and her marginal tax rate is 20 percent.
D)Her average tax rate is 33 percent and her marginal tax rate is 33 percent.

Accepted Answer

To calculate the average tax rate, we divide the total taxes paid by the total income:
Average tax rate = (Total taxes paid / Total income) x 100
= (7,000 / 35,000) x 100
= 20%
To calculate the marginal tax rate, we need to find the tax rate on the next dollar earned. Since Pat owes the government 33 cents on every extra dollar earned, her marginal tax rate is 33%.

Quiz 12: The Design of the Tax System

The income tax requires that taxpayers pay 10percent on the first $40,000 of income and 20 percent on all income over $40,000. Emily paid $9,000 in taxes. What were her marginal and average tax rates?

Table 12-4 -Refer to Table 12-4. What is the marginal tax rate for a person who makes $35,000?

Suppose the government taxes 30 percent of the first $70,000 and 50 percent of all income above $70,000. For a person earning $100,000, the marginal tax rate is

Which of the following statements is correct?

Table 12-4 -Refer to Table 12-4. What is the average tax rate for a person who makes $130,000?

Suppose the government taxes 25 percent of the first $60,000 of income and 40 percent of all income above $60,000. For a person earning $200,000, the marginal tax rate is

Pat calculates that for every extra dollar she earns, she owes the government 40 cents. Her total income now is $44,000, on which she pays taxes of $11,000. Determine her average tax rate and her marginal tax rate.

The income tax requires that taxpayers pay 10 percent on the first $50,000 of income and 20 percent on all income over $50,000. Andy paid $9,000 in taxes. What were his marginal and average tax rates?

Table 12-4 -Refer to Table 12-4. What is the marginal tax rate for a person who makes $50,000?

Suppose that the government taxes income in the following fashion: 30 percent of the first $20,000, 50 percent of the next $30,000, and 60 percent of all income over $50,000. Ted earns $40,000, and Robin earns $60,000. Which of the following statements is correct?

Table 12-4 -Refer to Table 12-4. What is the marginal tax rate for a person who makes $130,000?

Suppose the government taxes 10 percent of the first $40,000 of income and 20 percent of all income over $40,000. Shahina paid $10,000 in taxes. What were her marginal and average tax rates?

Suppose that the government taxes income in the following fashion: 20 percent of the first $50,000, 40 percent of the next $50,000, and 60 percent of all income over $100,000. Marshall earns $200,000, and Lily earns $600,000. Which of the following statements is correct?

Table 12-5 -Refer to Table 12-5. What is the marginal tax rate for a person who makes $37,000?

The income tax requires that taxpayers pay 10percent on the first $40,000 of income and 20 percent on all income over $40,000. Karen paid $6,000 in taxes. What were her marginal and average tax rates?

Suppose the government taxes 30 percent of the first $70,000 and 50 percent of all income above $70,000. For a person earning $200,000, the marginal tax rate is

The income tax requires that taxpayers pay 10percent on the first $40,000 of income and 20 percent on all income over $40,000. Karen paid $6,000 in taxes. What were her marginal and average tax rates?

Pat calculates that for every extra dollar she earns, she owes the government 33 cents. Her total income now is $35,000, on which she pays taxes of $7,000. Determine her average tax rate and her marginal tax rate.