Assume That in Year 1 Your Average Tax Rate Is

question 116

Multiple Choice

Assume that in year 1 your average tax rate is 20 percent on a taxable income of $20,000.If the marginal tax rate on the next $10,000 of taxable income is 30 percent,what will be the average tax rate if your taxable income rises to $30,000?

• A) About 7 percent
• B) About 30 percent
• C) About 16 percent
• D) About 23 percent
• You will pay $4000 on the first $20,000,then $3000 on the next $10,000 of income.Thus,your total taxes will be $7000 on $30,000 income for an average tax rate of 0.233,or 23.3 percent.