Question

Although the Tax Table is derived from the Tax Rate Schedules, the tax calculated using the two methods may vary slightly because:

1) Slightly different rates are used.
2) The tax for a particular income range in the Tax Table is based on the midpoint amount.
3) The tax for a particular income range in the Tax Table is based on the average amount.
4) The tax for a particular income range in the Tax Table is based on the highest amount.
5) The tax for a particular income range in the Tax Table is based on the lowest amount.

Answer 1

The slight variation between tax calculated by the Tax Table and the Tax Rate Schedules is due to the Tax Table's use of midpoint amount for income ranges, whereas the Tax Rate Schedules apply precise marginal tax rates on income earned. The Tax Table averages taxes for income brackets, but the Tax Rate Schedules increase the tax burden as income rises, reflecting the progressive tax system's method.

Step-by-step explanation:

When it comes to calculating taxes based on the Tax Table as opposed to the Tax Rate Schedules, there may be a slight variation in the amount of tax calculated by these two methods. This discrepancy arises because the tax for any given income range in the Tax Table is based on the midpoint amount of that range. Essentially, the Tax Table averages the taxes for all incomes within a certain bracket, whereas the Tax Rate Schedules apply specific marginal tax rates to each additional dollar of income earned, thereby not averaging but cumulatively increasing the tax burden as income rises. For instance, if a taxpayer has a taxable income of $20,000, they would use the second row of the table to determine their tax.

This would result in an amount of $837.50 plus 15% of the income over $8,375, or a total tax of $2,581.25. It's important to recognize that this is an example of using the Tax Table where amounts are calculated using an assumption around the midpoint of a tax bracket, distinct from the precise calculations performed when using the Tax Rate Schedules that follow exact thresholds. The average tax rate and the marginal tax rate are important in understanding the progressive nature of the tax system. The average tax rate is the overall portion of income paid in taxes, whereas the marginal tax rate represents the tax rate paid on the last (or next) dollar of income. These concepts illustrate how a progressive tax system operates to effectively redistribute income by imposing higher tax rates on higher income levels, thereby reducing the inequality in after-tax income between different income groups.