Congress would like to increase tax revenues by 10 percent. Assume that the average taxpayer in the United States earns $65,000 and pays an average tax rate of 15 percent. a. If the income effect is in effect for all taxpayers, what average tax rate will result in a 10 percent increase in tax revenues? (Round your answer to 2 decimal places.)

Question

Frank Sampson

Business

25 April, 10:47

Congress would like to increase tax revenues by 10 percent. Assume that the average taxpayer in the United States earns $65,000 and pays an average tax rate of 15 percent. a. If the income effect is in effect for all taxpayers, what average tax rate will result in a 10 percent increase in tax revenues? (Round your answer to 2 decimal places.)

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Answers (1)

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Scout · Answer 1

Answer: 16.5% is the average tax rate that will result in a 10 percent increase in tax revenues.

Explanation:

This is an example of static forecasting since no time parameter is involved.

Now,

Let initial revenue be "R",

"n" be no. of taxpayer

∴ R = 65000*0.15*n

R + 0.1R = 65000*rate*n

Using the above two equation, we'll get;

r = 16.5%