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Campbell, a single taxpayer, earns $316,000 in taxable income and $7,600 in interest from an investment in State of New YorkHugh has the choice between investing in a City of Heflin bond at 5.70 percent or investing in a Surething Inc. bond at 9.25Song earns $114,000 taxable income as an interior designer and is taxed at an average rate of 20 percent (i.e., $22,800 of tab. What is the term that describes this type of reaction to a tax rate increase? O Budget constraint O Endowment effect O Pri

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Answer #1

Dear Student,

As per the HOMEWORKLIB POLICY, only the first question should be answered. Kindly take note of it. Each new question should be posted separately.

Part A

Tax due on $316000 = 46628.50+(35%*(316000-204100)) = $85793.50

Income after addition = 316000+22000 = $338000

Tax on income after addition = 46628.50+(35%*(338000-204100)) = 93493.50

Marginal Tax Rate =(Change in Tax)/(Change in Taxable Income) = (93493.50-85793.50)/(338000-316000) = 35%

Part B

Tax due on $316000 = 46628.50+(35%*(316000-204100)) = $85793.50

Income after deduction = 316000-22000 = $294000

Tax on income after addition = 46628.50+(35%*(294000-204100)) = 78093.50

Marginal Tax Rate =(Change in Tax)/(Change in Taxable Income) = (78093.50-85793.50)/(294000-316000) = 35%

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