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A Quantitative Reasoning Approach Chapter 3E #29 A Tax Cut. answer A. B. & C.
29, A Tax Cut. According to an analysis of a proposed federal tax cut by the accounting firm Deloitte and Touche, son with a
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Answer #1

(a): Absolute difference = $12,838 - $211

= $12,627

Savings as a % of earnings for the single person with household income of $41,000 = 211/41,000 = 0.51%

Savings as a % of earnings for the single person with household income of $530,000 = 12838/530000 = 2.42%

(b): Absolute difference = 13442 – 1208 = $12,234

Savings as a % of earnings for the married couple with income of $41,000 = 1208/41,000 = 2.95%

Savings as a % of earnings for the married couple with income of $530,000 = 13,442/530,000 = 2.54%

(c ): Tax cuts do not always help lower income people as can be seen from the analysis and calculations above. In case of a single person the tax cut leads to a saving of just 0.51% for the low income individual whereas for the high income individual the tax cut leads to a much higher savings of 2.42%. The effect of tax cuts on lower income people also depends on their filing status as well. From the calculations done in “b” above we can see that in case of a married couple (who must be filing as married filing jointly or separately) the couple with the lower income is able to save 2.95% of their income after tax cut. This amount is lower for the couple with higher income and their savings is 2.54% only.

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