CHAPTER&Intreduction; to Government Finance 1. Suppose you currently carn taxabl
ID: 1118239 • Letter: C
Question
CHAPTER&Intreduction; to Government Finance 1. Suppose you currently carn taxable income of $100,000 per year. You are subject to an MTR of SO percent. Currently, your ATR is 35 percent. Calculate your annual tax. Calculate the extra tax that you would pay per year if your annual income increased to $110,000. What is your ATR when your annual income is $110,000 2. The payroll tax for unemployment insurance in a certain nation taxes all wages up to a maximum per worker of $30,000 at a 5 percent flat rate. What are the marginal and average tax rates on the wages for each of the following three workers? a. A restaurant worker with annual wages of $18,000 b. An assistant bank manager with wages of $35,000 per year. C. A corporate CEO with an annual salary of $500,000. 4. Indicatewhether youagreewiththe following statement, and give your reasons for doing so: "if the beltline surrounding the city of Raleigh were a pure public good, efficiency would require that the price to use the road be zero. However, during rush hour congestion, the road cannot be regarded as a pure public good and a toll should be charged for its use. If an automated vehicle identification system (AVI) were established for residents of the metropolitan area around Raleigh who use the betline, how would you set tolls to achieve efficient use of the road? The AVI system would allow you to send a bill to each user of the road each month based on miles traveled on the road and the price you charge, which could vary by time of day 5. Indicate how each of the following could impact tax evasion and explain why the effect takes place: a. An increase in MTRs b. A decrease in MTRs c. An increase in the complexity of the tax code. d. An increase in the probability that a taxpayers return will be audited e. An increase in the penalty for tax evasion.Explanation / Answer
Question 1
Taxable income = $100,000
ATR = 35 percent or 0.35
Calculate annual tax -
ATR = Annual tax/Taxable income
or,
Annual tax = Annual taxable income * ATR
Annual tax = $100,000 * 0.35
Annual tax = $35,000
The annual tax is $35,000.
Now, income increases to $110,000.
There is increase of $10,000 in income.
MTR is 50 percent.
This implies that this increase of $10,000 in income will be taxed at 50%.
Additional tax = $10,000 * 0.50 = $5,000
The extra tax to be paid when income increases to $110,000 is $5,000.
Total tax paid = Annual tax + additional tax = $35,000 + $5,000 = $40,000
Calculate ATR when annual income increases to $110,000 -
ATR = Total taxes paid/Annual income = $40,000/$110,000 = 0.3636 or 36.36%
The ATR when annual income is $110,000 is 36.36%.