Question

Homework (Ch 20) 6. The negative income tax Many economists believe that a more effective way to supplement the income of the poor is through a negative income tax. Under this scheme, everyone reports his or her income to the government; individuals and families earning a higher income will pay a tax based on that income, while low-income individuals and families receive a subsidy, or negative tax. Assume that the only qualification required to receive a tax credit is low income. Suppose the government uses the following equation to compute a family's tax liability: Thres Owed (1/4 of Income) - $6,000 For each of the incomes listed in the following table, determine the tax liability for a family with that income level. (Note: If a family receives a subsidy because its income is too low, be sure to indicate the tax liability as negative.) Tax Liability (Dollars per year) Income (Dollars per year) 0 12,000 24,000 60,000

Answer 1

Table

Income	tax liability
0	-6000
12,000	-3000
24,000	0
60,000	9000

True/false false

Tax credit is negative tax , a subsidy,

Tax credit = -taxes owed

= 6000- income/4

dTax credit/dincome = -.25

So for every dollar earned, tax credit falls by .25 dollar