Question

The city of bloondy is made up of 100 households. The city government needs to collect $800,000 in income taxes to be able to function. The population consists of 6 groups: Group A: 20 households that earn $12,000 each. Group B: 20 households that earn $29,000 each. Group C: 20 households that earn $50,000 each. Group D: 20 households that earn $79,000 each. Group E: 15 households that earn $129,000 each. Group F: 5 households that earn $295,000 each. We have been tasked to determine new income tax rates. The first proposal we'll consider is a flat tax – one where every income group is taxed at the same percentage tax rate.

1) Determine the total income for the population (all 100 households together).

2) Determine what flat tax rate would be necessary to collect enough money. (Round your rate to one decimal).

The second proposal we will consider is a modified flat-tax plan, where each household only pays taxes on any income over $20,000. So, Group A will pay no taxes. Group B will pay taxes only on $9,000 and so on.

3) Determine the total taxable income for the whole population (all 100 households together).

4) Determine what tax rate would be necessary to collect enough money in this modified system?

Answer 1

To determine the total income for the population, calculate the income for each group and sum them up. The flat tax rate necessary to collect enough money is 11.7%. The tax rate necessary in the modified system is 16.1%.

Step-by-step explanation:

To determine the total income for the population, we need to calculate the income for each group and then sum them up. Group A earns $12,000 per household, so their total income is $12,000 * 20 = $240,000. Group B earns $29,000 per household, so their total income is $29,000 * 20 = $580,000. Group C earns $50,000 per household, so their total income is $50,000 * 20 = $1,000,000. Group D earns $79,000 per household, so their total income is $79,000 * 20 = $1,580,000. Group E earns $129,000 per household, so their total income is $129,000 * 15 = $1,935,000. Group F earns $295,000 per household, so their total income is $295,000 * 5 = $1,475,000. The total income for all 100 households is $240,000 + $580,000 + $1,000,000 + $1,580,000 + $1,935,000 + $1,475,000 = $6,810,000.

To determine the flat tax rate necessary to collect enough money, we divide the total income tax needed by the total income. The flat tax rate is $800,000 / $6,810,000 = 0.1174, or 11.7% (rounded to one decimal).

The total taxable income for the whole population in the modified flat-tax system is the income above $20,000 for each group. Group B has 20 households and a taxable income of $9,000 per household, so their total taxable income is $9,000 * 20 = $180,000. Group C has 20 households and a taxable income of $30,000 per household, so their total taxable income is $30,000 * 20 = $600,000. Group D has 20 households and a taxable income of $59,000 per household, so their total taxable income is $59,000 * 20 = $1,180,000. Group E has 15 households and a taxable income of $109,000 per household, so their total taxable income is $109,000 * 15 = $1,635,000. Group F has 5 households and a taxable income of $275,000 per household, so their total taxable income is $275,000 * 5 = $1,375,000. The total taxable income for all 100 households is $180,000 + $600,000 + $1,180,000 + $1,635,000 + $1,375,000 = $4,970,000.