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Complete the following table and answer the following questions
Complete the following table and answer the following questions. Tax Rate Tax Paid Before-Tax Income $500,000 After-Tax Income 37% High-income family Middle-income family 50,000 20% Low-income family 20,000 10% Using the table, the ratio of a high-income family's to a low-income family's Instructions: Round your responses to one decimal place. a. before-tax income is: to 1 b. after-tax income is: to 1 C. Is this tax progressive?
Expert Solution
| Before tax income | tax rate | tax paid | after tax income | |
| High income family | $500,000 | 37% | $185,000 | $315,000 |
| Middle income family | 50,000 | 20% | $10,000 | $40,000 |
| Low income family | 20,000 | 10% | $2,000 | $18,000 |
working;
tax paid = before tax income * tax rate
high income family =>$500,000*37%=$185,000.
middle income family =>$50,000*20%=>$10,000.
low income family =$20,000*10%=>$2,000.
after tax income = before tax income - tax paid
=>$500,000-185,000=>$315,000.
middle income family =$50,000-10,000=>$40,000.
Low income family =>$20,000-2,000=>$18,000.
Second part;
ratio of high income family to a low income family
| a. before tax income is ($500,000/20,000) | 25 to 1 |
| b.after tax income is ($315,000/18,000) | 17.5 to 1 |
| c. Is this tax progressive | Yes |
Since the before tax income ratio is higher than after tax income ratio, it can be said that the tax is progressive.
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