Suppose the Income Tax Rate Schedule Is 0 Percent on the First

question 34

Multiple Choice

Suppose the income tax rate schedule is 0 percent on the first $10,000; 10 percent on the next $20,000; 20 percent on the next $20,000; 30 percent on the next $20,000; and 40 percent on any income over $70,000. Family A earns $28,000 a year and Family B earns $65,000 a year. Both receive a ten percent raise. What is the marginal tax rate of each and what is the extra tax paid by each after the raise?

• A) Family A: 10 percent marginal tax rate and $280 in extra taxes; Family B-30 percent marginal tax rate and $1950 in extra taxes.
• B) Family A: 10 percent marginal tax rate and $420 in extra taxes; Family B-30 percent marginal tax rate and $2275 in extra taxes.
• C) Family A: 20 percent marginal tax rate and $360 in extra taxes; Family B-40 percent marginal tax rate and $2100 in extra taxes.
• D) Family A: 20 percent marginal tax rate and $560 in extra taxes. Family B-40 percent marginal tax rate and $2600 in extra taxes.

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