Question

Are the statements below true/false?

1. Suppose income taxes rise only on incomes over $250,000 annually. Then your after-tax income will be unaffected if your annual income is only $100,000.

2. In order for wealthy citizens to pay their full proportional share of government services, their tax rate or percentage must rise as their incomes also rise far beyond the incomes of a average citizens.

3. Government regulation of the private economy is necessary in order for average income to grow over time.

Answer 1

Answer to the question no. 1:

Option: True.

Explanation: An increase in the marginal tax rate for the people over income of $250000 annually will not affect the person's disposible income whose income is less than the $250000 annually. Since $100000 is less than the $250000, an increase in the tax rate for the people over income level of $250000 will not affect the afetr tax income of the low income people.

Answer to the question no. 2:

Option: True.

Explanation: This phenomenon is known as the progressive tax system. When the income of the society rises the tax rates also increases but the people with higher income will have to pay a higher proportion of taxes out of their income as compared to the lower income group. This reduces the income and wealth inequality in the society.

Answer to the question no. 3:

Option: False.

Explanation: The governmnet regulation in an market economy is necessary because their are many services that a private firm can not provide. Governmnet exists in order to provide the public goods pricing of which is not possible. And thus, the private firms are not able to provide these goods. Also, to maintain the economic stability governmnet plays a very important role in the economy.

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