What is the effective tax rate with Dick Armory’s proposed flat tax for a family

Question

What is the effective tax rate with Dick Armory’s proposed flat tax for a family of four (two adults and two children) with earnings of (A) $30,000? (B) $50,000? 5.00 polnts Problem 19-10 Refer to the text below: A FLAT TAX? Mdespread dissatisfaction with the present tax system has spawned numerous reform proposals. One of the most debated proposals is to replace the current federal income tax with a flat tax. First proposed by Nobel Prize winner Milton Friedman in the early 1980s, the flat tax was championed in Congress by former majority leader (and former economics professor) Dick Armey. The concept resurfaced as a political issue in the 2012 presidential election The key features of a flat tax include Replacing the current system of multiple tax brackets and rates with a single (flat) tax Eliminating all deductions, credits, and most exemptions hatibrackets and rales with a inge flap rate that would apply to all taxable income. Simplicity. A major attraction of the flat tax is its simplicity. The current 2,800-page tax code that details all the provisions of the present system would be scrapped. The 437 different IRS tax forms now in use would be replaced by a single. postcard-sized form. Fairness. Flat tax advocates also emphasize its fairness. They point to the rampant vertical and horcontal inequities created by the curent tange of tax loopholes By scrapping althose deductions, the flat tax would treat everyone equally Some progressivity could also be preserved with a fiat tax. In the version proposed by Dick Amey the flat tax rate would be 17 percent but one personal exemption would be maintained Every would get a personal exémption of S13,100 and each child an exemption of $5,300. Accordingly, a amily of four would have personal exemptions of $36,800. Hence a famly earning less than that amount would pay no income tax. Effective tax rates would increase along with rising incomes above hat threshold Efficiency. Proponents of a flat tax claim it enhances efficiency as well as equity. Taxpayers now spend over a billion hours a year preparing tax returns Legions of lobbyists, accountants, and lawyers devote thair energy to taxy analysis and avoidance Wth a simplifed flat tax, all those labor resources could be put to more productive use What is the effective tax rate with Dick Armey's proposed flat tax for a family of four (two adults and (a) $30 000? Instructions: Enter your response as a percent rounded to the nearest whole number Active Listening 18..updf

Explanation / Answer

A) No income tax is to be paid as the family of four will have personal exemption of $ 36800 while the earnings here are only $ 30000

B) Effective tax rate = $ 50000 - 36800 (exemption subtracted)

                             = $ 13200

                             = $ 13200 x 17 %

                            = $ 2244

Then the effective tax rate = $ 2244/50000*100

                                      = 4 % (4.488 as per calculation but rounded off to nearest whole number according to given instruction)

C) Effective tax rate = $ 100000 - 36800 (exemption subtracted)

                             = $ 63200

                             = $ 63200 x 17 %

                            = $ 10744

Then the effective tax rate = $ 10744/100000*100

                                      = 11 (10.744 as per calculation but rounded off to nearest whole number according to given instruction)

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