The tax system in Taxilvania includes a negative income tax. For all incomes below $10,000, individuals pay an income tax of −40% (that is, they receive a payment of 40% of their income). For any income above the $10,000 threshold, the tax rate on that additional income is 10%. For the first three scenarios below, calculate the amount of income tax to be paid and after-tax income.
a. Lowani earns income of $8,000.
b. Midram earns income of $40,000.
c. Hi-Wan earns income of $100,000.
d. Can you find a notch in this tax system? That is, can you find a situation where earning more pre-tax income actually results in less after-tax income?