Question

Congress would like to increase tax revenues by 11.5 percent. assume that the average taxpayer in the united states earns $62,000 and pays an average tax rate of 10 percent.

a. if the income effect is in effect for all taxpayers, what average tax rate will result in a 11.5 percent increase in tax revenues?

Answer 1

The new average tax rate required to achieve an 11.5 percent increase in tax revenues would be approximately 11.15 percent, assuming all taxpayers are subject to the income effect.

Step-by-step explanation:

To calculate the new average tax rate that would result in an 11.5 percent increase in tax revenues, we begin by determining the current tax revenue. With an average income of $62,000 and an average tax rate of 10 percent, the current tax revenue per taxpayer is $62,000 * 0.10 = $6,200. An 11.5 percent increase in this revenue would be $6,200 * 1.115 = $6,913.

To find the new average tax rate, we set the increased revenue equal to the new tax rate times the average income: $6,913 = new tax rate * $62,000. Solving for the new tax rate gives us new tax rate = $6,913 / $62,000 = 0.1115, or 11.15 percent.

Therefore, if the income effect is in effect for all taxpayers, the new average tax rate required to achieve an 11.5 percent increase in tax revenues would be approximately 11.15 percent.

Answer 2

An increase of 11.5 percent is the same as multiplying by 1.115. Since the current rate is 10 percent, an 11.5 percent increase would be:
10 percent x 1.115 = 11.15 percent.