With a negative income tax providing a minimum of $20,000 and a tax rate of 25 percent, what amount of supplement would the government pay to a household earning $10,000?

Question

Quizplus · Accepted Answer

To find out the supplement that the government would pay to a household earning $10,000, we need to calculate the difference between their income and the minimum income provided by the negative income tax, which is $20,000 - $10,000 = $10,000.

Then, we need to apply the tax rate of 25 percent to this difference to calculate the amount of supplement: 25% x $10,000 = $2,500.

Therefore, the government would pay a supplement of $2,500 to a household earning $10,000.

The correct answer is C) $17,500, which is the sum of the household's income of $10,000 and the supplement of $7,500 that they would receive from the negative income tax ($20,000 - 25% x $10,000).

With a Negative Income Tax Providing a Minimum of $20,000