Question

Suppose the income tax rate schedule is 0 percent on the first $10,000; 10 percent on the next $20,000; 20 percent on the next $20,000; 30 percent on the next $20,000; and 40 percent on any income over $70,000. Family A earns $28,000 a year and Family B earns $65,000 a year. Both receive a ten percent raise. What is the marginal tax rate of each and what is the extra tax paid by each after the raise?


A. Family A: 20 percent marginal tax rate and $560 in extra taxes. Family B: 40 percent marginal tax rate and $2600 in extra taxes.

B. Family A: 20 percent marginal tax rate and $360 in extra taxes; Family B: 40 percent marginal tax rate and $2100 in extra taxes.

C. Family A: 15 percent marginal tax rate and $420 in extra taxes; Family B: 35 percent marginal tax rate and $2275 in extra taxes.

D. Family A: 10 percent marginal tax rate and $280 in extra taxes; Family B: 30 percent marginal tax rate and $1950 in extra taxes.

Answer 1

Is the answer D?

(I picked D I think the marginal tax rates are correct, but I'm not sure how to calculate the extra tax paid)

Answer 2

I think the correct answer is B.
For A, income goes from 28000 to 30800, a change of 2800. Since the new income is between 30000 and 50000, the mtr is 20%. Of the change in income of 2800, 2000 was taxed at the 10% rate and the remaining 800 was taxed at the 20% rate. So, .1*2000+.2*800 = 360.

Repeat for Family B.