Question

Ms. Benoit is a self-employed architect who earns $300,000 annual taxable income. For the past several years, her tax rate on this income has been 35 percent. Because of recent tax law changes, Ms. Benoit’s tax rate for next year will decrease to 25 percent. Based on a static forecast, how much less revenue will the government collect from Ms. Benoit is a self-employed architect who earns $300,000 annual taxable income. For the past several years, her tax rate on this income has been 35 percent. Because of recent tax law changes, Ms. Benoit’s tax rate for next year will decrease to 25 percent. a) Based on a static forecast, how much less revenue will the government collect from Ms. Benoit next year? b) How much less revenue will the government collect from Ms. Benoit next year if she responds to the rate decrease by working more hours and earning $375,000 taxable income? c) How much less revenue will the government collect from Ms. Benoit next year if she responds to the rate decre

Answer 1

a

`Y  = \$ 30000`

b

`Y  = \$ 11250`

c

`X  = \$  36250`

Explanation:

From the question we are told that

The annual taxable income is
`A = \$ 300,000`

The tax rate for next year is
`r =  0.25`

The present tax rate is
`R =  0.35`

Generally the present amount of tax collected from Ms Benoit is

`K =  A   * R`

`K =  300000  * 0.35`

=>
`K =   \$105000`

Generally the amount of tax collected from Ms Benoit nest year is

`B =  A   * r`

`B =  300000  * 0.25`

=>
`B =   \$75000`

The reduction in the tax amount is mathematically represented as

`Y  =  K  - B`

=>
`Y  =  105000  - 75000`

=>
`Y  = \$ 30000`

Generally the tax amount of next year when the income is $375,000 is mathematically represented as

`M  =  375 000   *   r`

=>
`M  =  375 000   *   0.25`

=>
`M  =  \$ 93 750`

The reduction in the tax amount is mathematically represented as when the income for next year is $375,000

`Z  =  K  - M`

=>
`Z  =  105000  -93 750`

=>
`Z  = \$ 11250`

Generally the tax amount of next year when the income is $275,000 is mathematically represented as

`U  =  275,000   *   r`

=>
`U  =  275 000*   0.25`

=>
`M  =  \$ 68 750`

The reduction in the tax amount is mathematically represented as when the income for next year is $275,000

`X  =  K  - M`

=>
`X  =  105000  -68 750`

=>
`X  = \$  36250`