Problem: Average corporate tax rates.
Q1. Calculate the tax liability, after-tax earnings, and average tax rates for the following levels of corporate earnings before taxes: $12,100, $81,700, $299,000, $1.4 million, $9.8 million, and $19.7 million.
Q2. Plot the average tax rates (measured on the y-axis) against the pretax income levels (measured on the x-axis). What generalization can be made concerning the relationship between these variables?
Corporate Tax Rate Schedule
Range of taxable income Base Tax + (Marginal Rate x amount over base bracket
$0 to $50,000 $0 + (15% x amount over $0)
50,000 to 75,000 7,500 + (25% x amount over 50,000)
75,000 to 100,000 13,750 + (34% x amount over 75,000)
100,000 to 335.000 22,250 + (39% x amount over 100,000)
335,000 to 10,000,000 113,900 + (34% x amount over 335,000)
10,000,000 to 15,000,000 3,400,000 + (35% x amount over 10,000,000)
15,000,000 to 18,333,333 5,150,000 + (38% x amount over 15,000,000)
Over 18,333,333 6,416,667 ++ (35% x amount over 18,333,333)