Final answer:
Taxes are calculated using taxable income, which is the adjusted gross income minus deductions and exemptions. Tax rates vary by income levels, with the possibility of tax credits and alternative minimum tax affecting the final tax amount. Taxation models can be manipulated by economic and political factors to address specific questions.
Step-by-step explanation:
Taxes are calculated based on taxable income, which is computed as the adjusted gross income minus deductions and exemptions. The process for determining taxable income can involve several steps, beginning with the aggregation of one's income including wages, interest, and possibly other sources such as unemployment compensation. Subtractions from this amount include the standard deduction and exemptions which collectively reduce the adjusted gross income to the taxable income. Different tax rates apply to various income levels, and there are additional factors like tax credits and the alternative minimum tax that might affect the final amount of tax due.
In an economic model, taxation can be adjusted for various conditions that may not directly relate to national income. Such a model can account for political factors, the role of imports and exports in the economy, and can be adapted to specific economic questions by a skilled economist.
The basic algebraic equation for taxable income remains:
taxable income = adjusted gross income - (deductions + exemption)