Suppose the government implemented a negative income tax and used the following formula to compute a...
Suppose the government implemented a negative income tax and used the following formula to compute a family’s tax liability: Taxes owed = (1/6 of income) - $24,000 Refer to Scenario 20-7.
A family earning $120,000 before taxes would have how much after-tax income?
a. -$4,000
b. $96,000
c. $116,000
d. $124,000
Homework Answers
Tax liability equation is as follows -
Taxes owed = [1/6 of income] - $24,000
Income of the family = $120,000
Calculate the tax owed -
Tax owed = [1/6 of income] - $24,000
Tax owed = [1/6 * $120,000] - $24,000
Tax owed = $20,000 - $24,000
Tax owed = -$4,000
The tax owed is negative amount.
The government has implemented the negative income tax.
This means that if a family has tax owed in negative amount then such amount would be provided by the government to the family.
So, family will receive $4,000 from the government.
After such receipt, the income of the family becomes ($120,000 + $4,000) $124,000.
Thus,
The after-tax income is $124,000.
Hence, the correct answer is the option (d).
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