Suppose a poverty program has a basic benefit of $8,000,and a family can earn up to $16,000 before losing all welfare benefits.The marginal tax rate is ________ percent.

Question

Quizplus · Accepted Answer

The marginal tax rate in this context refers to the rate at which benefits are reduced for each additional dollar earned. Here, the program allows a family to earn up to $16,000 before losing all benefits, starting from a base benefit of $8,000. This means that for every dollar earned over $0, the family loses some portion of the $8,000 benefit. To calculate the marginal tax rate, we divide the total reduction in benefits ($8,000) by the range of income over which this reduction occurs ($16,000). Thus, the marginal tax rate is $8,000 / $16,000 = 0.5, or 50 percent.

Suppose a Poverty Program Has a Basic Benefit of $8,000,and