Suppose the government imposes a tax of 15 per cent on the first $70 000 of income anD.20 per cent on all incomes above $70 000, what are the tax liability and the marginal tax rate for a person whose income is $80 000?

Question

Quizplus · Accepted Answer

For the first $70,000 of income, the tax rate is 15%, so the tax liability would be:
$70,000 x 0.15 = $10,500
For the remaining $10,000 of income, the tax rate is 20%, so the tax liability would be:
$10,000 x 0.20 = $2,000
Therefore, the total tax liability would be:
$10,500 + $2,000 = $12,500
The marginal tax rate is the tax rate on the next dollar of income, and for someone earning $80,000, that would be the 20% rate imposed on the last $10,000 of income. Therefore, the marginal tax rate is 20%.

Suppose the Government Imposes a Tax of 15 Per Cent