5. Computing and interpreting average tax rates In a hypothetical economy, Manue

Question

5. Computing and interpreting average tax rates In a hypothetical economy, Manuel earns $11,000, Poornima earns $22,000, and Shen earns $33,000 in annual income. The following table shows the annual taxable income and tax liability for these three single individuals. For example, Manuel, who earns $11,000, owes $2,860 in taxes. Use the tax liability figures provided to complete the following table by computing the average tax rate for Manuel, Poornima, and Shen with an annual income of $11,000, $22,000, and $33,000, respectively. Taxable Income Tax Liability oollars) (oollers Average Tax Rate (Percent) Taxable Income Manuel Poornima Shen 11,000 22,000 33,000 2,860 3,520 3,630 Grade It Now Save & Continue Continue without saving

Explanation / Answer

(Question 5)

Average tax rate (%) = (Tax liability / Taxable income) x 100

Manuel: ($2,860 / $11,000) x 100 = 26%

Poornima: ($3,520 / $22,000) x 100 = 16%

Shen: ($3,630 / $33,000) x 100 = 11%

The income tax system is Regressive (Since average tax rate falls as taxable income rises).

NOTE: As per Chegg answering guidelines, first question is answered.

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