Question

john earns $25,000 and pays $10,000 in tax. if john's income increases by $100, his tax increases by $43. what is john's average tax rate? what is john's marginal tax rate?

Answer 1

John's average tax rate is 40%, which is calculated by dividing his total tax paid by his total income. His marginal tax rate is 43%, which is the tax rate on an additional $100 of income.

Step-by-step explanation:

First, let's calculate John's average tax rate.

The average tax rate is the total tax paid divided by total income.

For John's initial income, the average tax rate is calculated as follows: $10,000 (total tax) / $25,000 (total income) = 0.4, or 40%.

Now, for John's marginal tax rate, we consider the additional tax he pays on an additional $100 of income, which is $43.

The marginal tax rate is the additional tax paid divided by the additional income earned: $43 (additional tax) / $100 (additional income) = 0.43, or 43%.

So, John's marginal tax rate on the additional income is 43%.