Given the following tax structure, Taxpayer Salary Total Tax Mae $10,000 $ 600 Pedro $20,000 ???...

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Question

Given the following tax structure, Taxpayer Salary Total Tax Mae $10,000 $ 600 Pedro $20,000 ??? a. What is the minimum tax t

Answer 1

Answer #1

a)what is the minimum tax that Pedro should pay to make the tax structure vertically equitable based on the tax rate paid?
Mae’s average tax rate = $600/ $10000	6.00%
Taxable Income $10,000 To be vertically equitable with respect to tax rates, Pedro should pay a tax rate higher than 6 percent.
Pedro's tax = 20000 x 6%	$ 1,200.00
Minimum Tax	$ 1,201.00
Thus, Pedro must pay more than $1,200 tax (e.g., $1,201) for the tax structure to be vertically equitable .

b) what is the minimum tax that Pedro should pay to make the tax structure vertically equitable with respect to the amount of tax paid?
To be vertically equitable with respect to the amount of tax paid, Pedro should pay more in tax dollars than Mae because he earns more taxable income than her.
Minimum Tax	$ 601.00
Pedro pays 1 more dollar in tax than Mae (i.e., $601).

Answer 2

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