Which statement is correct with respect to marginal and average tax rates under

Question

Which statement is correct with respect to marginal and average tax rates under a progressive tax structure?

Multiple Choice

Generalizations cannot be made. The question can only be answered with reference to the tax situation of a specific taxpayer.

At very low levels of taxable income, a taxpayer's marginal and average tax rates will be the same.

At very high levels of taxable income, a taxpayer's marginal and average tax rates will be the same.

For most taxpayers, the average tax rate is larger than the marginal tax rate.

.

.

Jordan and Paul, a married couple, have taxable income of $46,625, which is taxed as follows:

Their marginal tax rate is:

Multiple Choice

13%.

10%.

15%.

12.5%.

.

.

Which of the following trial courts hear tax cases?

Multiple Choice

U.S. Tax Court.

All of these.

U.S. Court of Federal Claims.

U.S. District Court.

$18,650 × 10% = $ 1,865.00 ($46,625 - $18,650) × 15% = 4,196.25 Total tax liability $ 6,061.25

Explanation / Answer

Hey there !!

Lets solve part by part...do refer the explanation given for your understanding :)

Question 1

The correct option is B, at very low levels of taxable income, a taxpayer's marginal and average tax rates will be the same.

And Average rate of tax is %age of total tax liability over taxable income.

So in a progressive tax system, the average tax rate should always be lower than marginal tax rate because as an individual's income increases it will get taxed at a higher rate (marginal rate)

The only option that seems correct is that At very low levels of taxable income, a taxpayer's marginal and average tax rates will be the same.

Very low levels of income is to be considered, that is below the exemption limit.

So, only B option seems to be correct

Question 2

The marginal tax rate is 15%. Correct option is C.

As explained above, marginal tax rate is the increased tax rate on next higher level of income. So here, at first 10% tax is charged on first slab of $18,650 and then 15% on balance income. So marginal rate of tax os 15% itself.

Question 3

The correct answer is All of these ( Option B)

U.S. Tax CourT, US Court of Federal Claims, and US District court, All of them hear tax cases.

I hope the above solution is clear to you...do let me know in case of any concerns.

All the best :)

Happy studying :)

The question is based on the Progressive tax system regime, i.e. As taxable income increases, the tax rate will also increase.

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