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Assignment 3: Tax the Rich?

Due in your discussion section the week of October 27.

A. Number Crunching (excerpted from Bradley Schiller, The Microeconomy Today)

1. What is the effective tax rate with Dick Armey's proposed flat tax for a family of four with earnings of:

(a) $30,000

(b) $60,000

(c) $90,000

2. For the 1995 tax year, the federal tax liability of single individuals was computed with the help of the following table:

If your taxable income is above	But below	Then, your tax is computed as
0	$23,350	15%
$21,450	$56,550	$3,502.50 + 28% of income >$23,350
$56,550	$117,950	$12,798.50+31% of income >$56,550
$117,950	$256,500	$31,832,50 + 36% of income >$117,950
$256,500	--------	$81,710.50 + 39.6% of income> $256,500

(a) Compute the taxable income and taxes for the following taxpayers:

Taxpayer	Gross Income	Exemptions, Deductions	Taxable Income	Tax
A	$20,000	$7,000	_____________	_________
B	$30,000	$4,000	_____________	_________
C	$40,000	$28,000	_____________	_________
D	$70,000	$32,000	_____________	_________
E	$200,000	$80,000	_____________	_________

(b) Rank each taxpayer on the basis of the nominal tax rate, effective tax rate, and marginal tax rate.

 

(c) What can be said about the vertical and horizontal equity of this tax system?

B. Research

Familiarize yourself with the Statistical Abstract of the United States, a.k.a. The Stat Ab, which is available at the reference desk and in Government Documents in the Tower Library. Using the 1996 edition of this annual publication, answer the questions below. Use care in analyzing and interpreting data from tables. You will need to use a calculator, and think about what you are doing.

1. Income

a. In 1994, what percentage of all households in the United States had income of $50,000 or more?

b. What was the median income of all households in the U.S. in 1994?

2. Wealth:

a. In 1992, what percentage of all U.S. families owned stock? (Hint: look in the index under assets.)

3. Taxes:

a. What percentage of all federal tax revenues in 1995 came from estate and gift taxes?

b. What percentage came from from excise taxes?

c. What percentage came from individual income taxes?

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