The negative income tax
Many economists believe that a more effective way to supplement the income of the poor is through a negative income tax. Under this scheme, everyone reports his or her income to the government; individuals and families earning a higher income will pay a tax based on that income, while low-income individuals and families receive a subsidy, or negative tax Assume that the only qualification required to receive a tax credit is low income.
Suppose the government uses the following equation to compute a family's tax liability:
Taxes Owed = (1/4 of Income) - $10,000
For each of the incomes listed in the following table, determine the tax liability for a family with that income level.
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Income (Dollars per year)
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Tax Liability (Dollars per year)
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0
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20,000
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|
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40,000
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60,000
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True or False: The maximum subsidy a family can receive is $10,000.