Two tax systems. The first is given by equation T=.25Y, second is T= -10000+.25Y where T =
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Two tax systems. The first is given by equation T=.25Y, second is T= -10000+.25Y where T = total tax paid, while Y is income.
A) In two separate diagrams, graph the relationship between income received Y and total taxes paid T with Y on the horizontal axis.
B) Determine what happens to the average tax rate, defined as T/Y (which is the total taxes paid as a fraction of income received) for individuals with different income levels.
C) Comment on to what extent these two tax systems are vertically equitable.
D) Compare the total taxes paid for two households under both tax systems for a household in which one person earns 100,000 and one person earns 50,000, versus a tax splitting arrangement where both members report 75,000 each.
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