Suppose that the income tax law exempt income of less than 8,000 from being taxed, taxes income between $8,000 and $20,000 at 25% rate, and taxes income greater than 20,00 at a 30% rate.
- Find the average tax rate and the marginal tax rate for someone earning 16,000 and for someone earning 30,000.
- The tax law is changed so that income of less than 6,000 is untaxed, income from 6,000 to 20,00 is taxed 20%, and income of more than 20,000 continues to be taxed at 30%. Repeat Part (a)
- How will that tax law change in Part (b) affect the labor supply of the person initially making $16,000? How will it affect the labor supply of the person making $30,000.