Junior Earns $80,000 Taxable Income as a Regional Circuit Stock

question 46

Essay

Junior earns $80,000 taxable income as a regional circuit stock car driver and is taxed at an average rate of 25 percent (i.e., $20,000 of tax). If Congress increases the income tax rate such that Junior's average tax rate increases from 25% to 30%, how much more income tax will he pay assuming that the income effect is larger than the substitution effect? What effect will this tax rate change have on the tax base and tax collected? What will happen to the government's tax revenues if Junior chooses to spend more time pursuing his other passions besides work (e.g., earns only $60,000 in taxable income) in response to the tax rate change? What is the term that describes this type of reaction to a tax rate increase? (Round your answers to two decimal places.)

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Definitions:

Privately/Publicly

The distinction between actions or opinions kept within oneself or shared in a community or public setting, respectively.

Touch Pad

An input device that allows a user to control a computer cursor or other functions by touching a flat surface with a finger or stylus.

Computer Type

Refers to the category of computer based on its size, functionality, and purpose, such as desktop, laptop, or tablet.

Printed Matter

Materials that are printed and distributed, such as books, magazines, flyers, and posters.