Question

etween 2017 and​ 2018, a small​ businessperson's income increased from​ $200,000 to​ $220,000. The annual state income taxes that she paid increased from ​$5 comma 200 to ​$6 comma 300. What was her marginal state income tax rate in​ 2018? Did this individual experience​ proportional, progressive, or regressive​ taxation? Explain briefly This small​ businessperson's marginal state income tax rate in 2018 was nothing percent

Answer 1

To determine the marginal tax rate that the businessman paid in 2018, we must obtain the percentage that 6,300 represents in a total of 220,000. This is obtained through a cross multiplication:

220,000 = 100

6,300 = X

(6,300 x 100) / 220,000 = X

2.86 = X

As we can see, the tax rate that this businessman had to pay in 2018 was 2.86% of his income.

Now, in 2017, having obtained a profit of $ 200,000, he paid taxes of $ 5,200:

200,000 = 100

5,200 = X

(5,200 x 100) / 200,000 = X

2.6 = X

Therefore, in 2017 he paid taxes for 2.6% of his earnings.

As we can see, his marginal tax rate increased from 2.6% to 2.86% due to higher profits, which is a situation of progressive taxation.