Question

To begin how high were taxes on personal income at the beginning of the 21st century? As an example, write down the marginal tax schedule for a single individual in the tax year for 2000. What was the standard deduction and what was the personal exemption? Suppose an individual earned $150,000. What would the individual's taxable income be? In addition, what was their total tax liability? Based upon the individual's tax liability, what would have been their average tax rate and their marginal tax rate? Be sure to provide details behind the calculation.

Answer 1

Marginal tax schedule for a single individual in the tax year for 2000

If taxable income is between	Tax bracket
0 and $26,250	15%
$26,250 and $63,550	28%
$63,550 and $132,600	31%
$132,600 and $288,350	36%
$288,350 and above	39.6%

Standard deduction for 2000 = $4,400

Personal Exemption for 2000 = $2,800

Taxable Income = Gross Income - Standard deduction - Personal Exemption = $150,000 - $4,400 - $2,800 = $142,800

Tax on $26,250 @15% = $3,937.5

Tax from $26,251 to $63,550 @28% = $10,444

Tax from $63,551 to $132,600 @31% = $21,405.5

Tax from $132,601 to $142,800 @36% = $3,672

Total tax liability = $3,937.5 + $10,444 + $21,405.5 + $3,672 = $39,459

Average tax rate = Total tax liability/Taxable income = $39,459/$142,800 = 27.63%

Marginal tax rate = 36%