Marginal and average tax rates Using the tax rate schedule given in Table 1.2, per-form...
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Marginal and average tax rates Using the tax rate schedule given in Table 1.2, per-form the following: a. Calculate the tax liability, after-tax earnings, and average tax rates for the fol-lowing levels of partnership earnings before taxes: $10,000; $80,000; $300,000; $500,000; $1 million; $1.5 million; and $2 million. b. Plot the average tax rates (measured on the y-axis) against the pretax income lev-els (measured on the x-axis). What generalization can be made concerning the relationship between these variables?
Taxable income brackets
Base tax
+
(Marginal rate X amount over bracket lower limit)
$
0 to $50,000
$
0
+
(15% X amount over $ 0)
50,000 to 75,000
$
7,500
+
(25% X amount over $ 50,000)
75,000 to 100,000
$
13,750
+
(34% X amount over $ 75,000)
100,000 to 335,000
$
22,250
+
(39% X amount over $ 100,000)
335,000 to 10,000,000
$
113,900
+
(34% X amount over $ 335,000)
10,000,000 to 15,000,000
$
3,400,000
+
(35% X amount over $ 10,000,000)
15,000,000 to 18,333,333
$
5,150,000
+
(38% X amount over $ 15,000,000)
Over 18,333,333
$
6,416,667
+
(35% X amount over $ 18,333,333)
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