Question

Assume that an economy is comprised of 1,000 households. Consider the simplified description of the United States wage distribution, income tax schedule and payroll tax schedule:

Tax Rate	Income Tax Brackets
0%	$0 - $15,000
12%	$15,0001 - $30,000
25%	$30,001 - $63,000
35%	$63,001 - $1,000,000

Payroll Tax Rate	Payroll Tax Bracket
6.0%	$0 - $50,000
> 6.0%	n.a.

Calculate the payroll tax, income tax, total tax bill, and average tax rate for each of the income groupings (produce figures for all empty cells in the table below). Some have been filled out. Show work for each cell.

% of Households	Earnings	Payroll Tax	Income Tax	Total Tax Bill	Average Tax Rate
35%	$23,000	$1,380	$960	$2,340	10.7%
30%	$42,000	$2,520
25%	$71,000
9%	$132,000
1%	$744,000

Answer 1

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