Scenario 12-3
A taxpayer faces the following tax rates on her income:

20 percent of the first $\$ 40,000$ of her income;
30 percent of all her income above $\$ 40,000$.
-Refer to Scenario 12-3. At what level of income would the taxpayer's marginal tax rate be 30 percent and her average tax rate be 25 percent?

Question

Scenario 12-3
A taxpayer faces the following tax rates on her income:
​
 20 percent of the first $\$ 40,000$ of her income;
30 percent of all her income above $\$ 40,000$.
-Refer to Scenario 12-3. At what level of income would the taxpayer's marginal tax rate be 30 percent and her average tax rate be 25 percent?

Quizplus · Accepted Answer

To have an average tax rate of 25%, the taxpayer's total tax divided by her total income must equal 0.25. If her income is $80,000, she pays $8,000 on the first $40,000 (20%) and $12,000 on the next $40,000 (30%), totaling $20,000 in taxes. $20,000/$80,000 = 0.25, so her average tax rate is 25%. At $80,000, her marginal tax rate is 30% because the next dollar earned would be taxed at 30%.

Scenario 12-3 a Taxpayer Faces the Following Tax Rates on Her

Scenario 12-3
a Taxpayer Faces the Following Tax Rates on Her