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Suppose That a Simple Tax System Were to Assess No

Question 31

Multiple Choice

Suppose that a simple tax system were to assess no tax up through $10,000, a 10 percent rate for income between $10,000 and $20,000, and a 20 percent rate on every dollar earned above $20,000. If inflation were to run at 10 percent for a year, then indexing would cause the 10 percent bracket to


A) run from $10,000 to $22,000 if the tax schedule were indexed.
B) hold fixed from $10,000 to $20,000 despite the indexing because the tax would remain proportional within the 10 percent bracket.
C) run from $11,000 to $22,000 if the tax schedule were indexed.
D) be narrowed, but its precise boundary points cannot be determined from the information provided.
E) none of the above.

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