Problem:
Congress would like to increase tax revenues by 11.5 percent. Assume that the average taxpayer in the United States earns $62,000 and pays an average tax rate of 10 percent.
Required:
Question: If the income effect is in effect for all taxpayers, what average tax rate will result in a 11.5 percent increase in tax revenues?
Note: Be sure to show how you arrived at your answer.