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%. Therefore, the tax liability for the first $70 000 is $10 500. 
For the remaining $10 000 ($80 000 - $70 000), the tax rate is 20%. Therefore, the tax liability for the additional $10 000 is $2 000. 
Therefore, the total tax liability is $12 500. 
The marginal tax rate is the tax rate that applies to the last dollar of income earned. In this case, the marginal tax rate for a person earning $80 000 is 20%.

Suppose the Government Imposes a Tax of 15 Per Cent