Suppose the government proposes a negative income tax that calculates taxes owed according to the formula TAXES OWED = (1/3 * INCOME)- 10 000. Suppose a family only earns $12 000. How much tax would they pay?

Question

Quizplus · Accepted Answer

Using the formula:
TAXES OWED = (1/3 * $12,000) - $10,000
TAXES OWED = $4000

Since the family only earns $12,000, their tax owed would be $4,000. However, since the negative income tax is designed to provide an income subsidy to those with low incomes, they would actually receive a net income subsidy of $6,000 ($10,000 - $4,000 = $6,000). Therefore, the best choice is C, they will receive a net income subsidy of $6,000.

Suppose the Government Proposes a Negative Income Tax That Calculates