Suppose the tax rate on the first $10,000 income is zero 10% on the next $20,000;20% on the next $20,000;30% on the next $30,000;and 40% on any income over $80,000.Family A has income of $40,000 and Family B has income of $100,000.What is the marginal and average tax rate for each family?

Question

Quizplus · Accepted Answer

Family A's income of $40,000 falls into the 20% tax bracket for the last dollar earned, making the marginal rate 20%. The average tax rate is calculated by considering the tax on the first $10,000 (0%), then 10% on the next $20,000 ($2,000), and 20% on the final $10,000 ($2,000), totaling $4,000 in tax. $4,000 of $40,000 is 10%. Family B's income of $100,000 puts the last dollar in the 40% bracket, making the marginal rate 40%. The average tax rate is calculated by summing the taxes across all brackets: $0 for the first $10,000, $2,000 for the next $20,000, $4,000 for the following $20,000, $9,000 for the next $30,000, and $8,000 for the last $20,000 (40% of $20,000), totaling $23,000 in tax. $23,000 of $100,000 is 23%.

Suppose the Tax Rate on the First $10,000 Income Is