Suppose the Working Income Tax Benefit (WITB) tops up a single individual’s income by 25 percent of the amount that employment earnings exceed $3000, up to a maximum payment of $1000.

a. Assume that the refundable WITB credit is reduced by 15 percent on the amount of earnings in excess of $11,500. Over what range of earnings is the credit at its maximum value? At what income is the credit reduced to zero?
b. Now let the statutory income tax be a flat rate of 30 percent, with a basic personal exemption of $5,000. Ignoring all other taxes and program benefits in the economy, except for the income tax and the WITB, calculate and describe the effective marginal tax rate (EMTR) faced by this individual on income ranging from zero to $20,000. Discuss the incentive effects associated with this EMTR schedule, regarding the decision to join the workforce and to increase hours worked, say, from part-time to full-time.