Refer to the corporate marginal tax rate information in Table 2.3.

a. Why do you think the marginal tax rate jumps up from 34 percent to 39 percent at a taxable income of $100,001, and then falls back to a 34 percent marginal rate at a taxable income of $335,001?

b. Compute the average tax rate for a corporation with exactly $335,001 in taxable income. Does this confirm your explanation in part (a)? What is the average tax rate for a corporation with exactly $18,333,334 in taxable income? Is the same thing happening here?

c. Both the 39 percent and 38 percent tax rates represent what is called a tax "bubble." Suppose the government wanted to lower the upper threshold of the 39 percent marginal tax bracket from $335,000 to $200,000. What would the new 39 percent bubble rate have to be?

Table 2.3

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Taxable Income Tax Rate 0 50,000 50,00175,000 75,001- 100,000 00,001- 335,000 335,001-10,000,000 10,000,001-15,000.000 15.00000118.333,333 15% 25 34 39 34 35 38 35 8,333,334