In a hypothetical economy, Felix earns $17,000, Janet earns $34,000, and Larry e

Question

In a hypothetical economy, Felix earns $17,000, Janet earns $34,000, and Larry earns $51,000 in annual income. The following table shows the annual taxable income and tax liability for these three single individuals. For example, Felix, who earns $17,000, owes $4,250 in taxes. Use the tax liability figures provided to complete the following table by computing the average tax rate for Felix, Janet, and Larry with an annual income of $17,000, $34,000, and $51,000, respectively. The income tax system for this country is

Explanation / Answer

Average tax rate = Tax liability/Taxable income

Felix:

Average tax rate = 4250/17000 = 25%

Janet:

Average tax rate = 5100/34000 = 15%

Larry:

Average tax rate = 5100/51000 = 10%

As it can be seen, tax liability decreases, as taxable income increases. This means that the income tax system for this country is regressive.

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