Question

6-3. Consider the table below when answering the following questions. Show your work, and explain briefly.

a. What is Christino's marginal tax rate?

b. What is Jarius's marginal tax rate?

c. What is Meg's marginal tax rate?

Short answer

Marginal tax rate for Christino, Jarius and Meg is 10%, 20% and 30% respectively.

Step-by-step solution

Step 1. Meaning 

Tax rate-

The specific percentage at which any corporation or an individual is taxed is the tax rate.

Marginal tax rate-

The specific percentage of tax taxed on the last dollar earned of taxable income by a corporation or an individual is a marginal tax.

Step 2. Explanation (a) 

Marginal Tax Rate = $∆$Tax Payable * 100 / $∆$Taxable Income

For Christino,

$∆$Tax Payable = $300 - $200 = $100

$∆$Taxable Income = $2000 - $1000 = $1000

by putting values into formula

Marginal Tax Rate = 100 * 100 / 1000 = 10%

Step 3. Explanation (b) 

Marginal Tax Rate = $∆$Tax Payable * 100 / $∆$Taxable Income

For Jarius,

$∆$Tax Payable = $400 - $200 = $200

$∆$Taxable Income = $2000 - $1000 = $1000

by putting values into formula-

Marginal Tax Rate = 200 * 100 / 1000 = 20%

Step 4. Explanation (c) 

Marginal Tax Rate = $∆$Tax Payable * 100 / $∆$Taxable Income

For Meg,

$∆$Tax Payable = $500 - $200 = $300

$∆$Taxable Income = $2000 - $1000 = $1000

by putting values into formula -

Marginal Tax Rate = 300 * 100 / 1000 = 30%