a. Let€™s explore the difference between the average income tax rate and the marginal income tax rate. In the simple land of Rabushka, there is only one tax rate, 20%, but workers don€™t have to pay tax on the first $10,000 of their income. For every dollar they earn above $10,000, they pay 20 cents on the dollar to the Lord High Mayor of Rabushka.
The easy way to calculate the tax bill is the same way that America€™s IRS does: Subtract $10,000 from each person€™s income and call the remainder €œtaxable income.€ Multiply taxable income by 0.20, and the result is €œtax due.€ Fill in the table.

b. Is the marginal tax rate ever lower than the average tax rate?
c. As a worker€™s income rises and rises past $1,000,000, will the average tax rate ever be greater than 20%?
d. Just to make sure you know what these terms mean in plain English: For an accountant making $50,000 per year, what percentage of her income goes to the Lord High Mayor?
This simple tax system is quite similar to the plan that economist Robert Hall and political scientist Alvin Rabushka spell out in their book, The Flat Tax, widely available for free online. Hall and Rabushka estimate that a system like this one would raise roughly the same amount of revenue as the current federal income tax.

Average Income Tax Rate Taxable Income $0 $0 $5,000 Marginal Tax Due Income $5,000 Tax Rate 096 1% 20% 0% 0% 6.7% $15,000 $20,000 $50,000 $100,000 $1,000,000 $1,000