Suppose the government taxes 30 percent of the first $70,000 and 50 percent of all income above $70,000. For a person earning $200,000, the marginal tax rate is

Question

Quizplus · Accepted Answer

For the person earning $200,000, the taxes will be calculated as follows:
30% of first $70,000 = $21,000
50% of remaining $130,000 = $65,000

Total taxes paid = $21,000 + $65,000 = $86,000

Marginal tax rate is the tax rate on the last dollar earned, which is 50% in this case.
Average tax rate is the total taxes paid divided by total income, which is ($86,000/$200,000) = 43%.

Therefore, the correct choice is D.

Suppose the Government Taxes 30 Percent of the First $70,000