Refer to the corporate marginal tax rate information in Table 2.3 . Compute the
ID: 2796558 • Letter: R
Question
Refer to the corporate marginal tax rate information in Table 2.3 .
Compute the average tax rate for a corporation with exactly $335,001 in taxable income. (Do not round intermediate calculations. Enter your answer as a percent rounded to the nearest whole number, e.g., 32.)
What is the average tax rate for a corporation with exactly $18,333,334? (Do not round intermediate calculations. Enter your answer as a percent rounded to the nearest whole number, e.g., 32.)
The 39 percent and 38 percent tax rates both represent what is called a tax “bubble.” Suppose the government wanted to lower the upper threshold of the 39 percent marginal tax bracket from $335,000 to $214,000. What would the new 39 percent bubble rate have to be? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)
Refer to the corporate marginal tax rate information in Table 2.3 .
Taxable Income Tax Rate 0- 50,000 75,000 75,001 100,000 100,001335,000 335,001-10,000,000 10,000,001-15,000,000 15,000,001-18,333,333 15% 25 34 39 34 35 38 35 50,001 18,333,334Explanation / Answer
b 1 -Taxes = 0.15($50K) + 0.25($25K) + 0.34($25K) + 0.39($235K) = $113.9K
Average tax rate = $113.9K / $335K = 34%
b-2 Taxes = 0.34($10M) + 0.35($5M) + 0.38($3.333M) = $6,416,667
Average tax rate = $6,416,667 / $18,333,334 = 35%
c)
Taxes should be = 0.34($214000) =$ 72,760
72760= 0.15(50000) + 0.25(25000) + 0.34(25000) + X(114000); (Assume X to be tax rate)
X($114000) = 72760 – 22250 = 50510 / $114000= 44.31%
So, the marginal tax rate has to be 44.31 for the incomes above $214,000.