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Compute the average income of U
Compute the average income of U.S. households.
If all income were equalized by government taxes and transfer payment, how much would the average household's:
-Highest fifth? ..............................................
-Second fifth? ..............................................
-Third fifth? ..............................................
-Fourth fifth? ..............................................
-Lowest fifth? ..............................................
What is the implied tax (i.e. average income on taxes) on the highest quintile?
Expert Solution
If the government equalized all income, every part of society would have to earn the same percentage of the total income. In order to do this, the more productive parts of society who are paid more, will have to be taxed and have their income transferred to the less productive parts of society.
The specific answers are 20%. This is because there is 100% of the income earned in this society and 1/5 of 100% is 20%. (100%/5 = 20%)
-Highest fifth? 20%
-Second fifth? 20%
-Third fifth? 20%
-Fourth fifth? 20%
-Lowest fifth? .20%
In order to create this perfectly equal society, the government would have to create a very progressive income tax where tax percentage rates are much higher for the highest quintile of society. Since we don't know their income, we can't figure out an exact %, but it is implied that they would be burdened a tax that reduces a majority of their income to transfer to the lower quintiles.
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