1. Scot and Vidia, married taxpayers, earn $92,000 in taxable income and $5,000 in interest from an investment in City of Tampa bonds. (Use the U.S. tax rate schedule). (Do not round intermediate calculations. Round your answer to 2 decimal places.)
a. If Scot and Vidia earn an additional $60,500 of taxable income, what is their marginal tax rate on this income?
b. How would your answer differ if they, instead, had $60,500 of additional deductions?
2. Melinda invests $200,000 in a City of Heflin bond that pays 6 percent interest. Alternatively, Melinda could have invested the $200,000 in a bond recently issued by Surething Inc., that pays 8 percent interest with similar risk and other nontax characteristics to the City of Heflin bond. Assume Melinda's marginal tax rate is 25 percent.
a. What is her after-tax rate of return for the City of Heflin bond?
b. How much explicit tax does Melinda pay on the City of Heflin bond?
c. How much implicit tax does she pay on the City of Heflin bond?
d. How much explicit tax would she have paid on the Surething Inc., bond?
e. What is her after-tax rate of return on the Surething Inc. bond?
3.Song earns $330,000 taxable income as an interior designer and is taxed at an average rate of 20 percent (i.e., $66,000 of tax).
If Congress increases the income tax rate such that Song's average tax rate increases from 20 percent to 25 percent, how much more income tax will she pay assuming that the income effect is descriptive?
4. Congress would like to increase tax revenues by 6.5 percent. Assume that the average taxpayer in the United States earns $57,000 and pays an average tax rate of 20 percent.
If the income effect is in effect for all taxpayers, what average tax rate will result in a 6.5 percent increase in tax revenues?