2. Suppose the tax code includes the followingtax brackets: Taxable income Margi

ID: 1244395 • Letter: 2

Question

2. Suppose the tax code includes the followingtax brackets:

Taxable income Marginal Tax Rate

0 - $15,000 15%

$15,001 - $40,000 20%

$40,001 - $60,000 25%

Suppose John Green has total income of $65,000but after deductions and

exemptions has a taxable income of$55,000.

What is his tax liability? (Ignore the$1)

What is his marginal tax rate? What is hisaverage tax rate? (tax liability / total

income)

What is his after-tax income? (total income– tax liability)

Now suppose that John Green gets a large raisethe next year so that his total income

and taxable income are, respectively, $87,000 and$75,000. Now what is his tax

liability?

What is his marginal tax rate? What is hisaverage tax rate?

What is his after-tax income?

Is he better off or worse off?

Is the tax progressive, proportional, orregressive?

What is his marginal tax rate? What is his average tax rate?(tax liability / total

Now suppose that John Green gets a large raise the next year sothat his total income

and taxable income are, respectively, $87,000 and $75,000. Nowwhat is his tax

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