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Homework 7

# Homework 7 - Economics 1480 Homework#7 Question 1 Marriage...

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Economics 1480 Homework #7 Question 1: Marriage penalties This question relates to the marriage penalty. Suppose that the brackets for single and married filers are as given below: Marginal tax rate Single bracket Joint bracket 10% \$0-\$6,000 \$0-\$12,000 15% \$6,0000-\$27,950 \$12,0000-\$46,700 27% \$27,950-\$67,700 \$46,700-\$112,850 30% \$67,700-\$141,250 \$112,850-\$171,950 35% \$141,250-\$307,050 \$171,950-\$307,050 38.6% >\$307,050 >\$307,050 Note: This table provides marginal tax rates, not average tax rates. Thus, for an single individual with taxable income of \$11,000, the first \$6,000 is taxed at 10 percent and the remaining \$5,000 is taxed at 15 percent, and the total tax is \$600+\$750=\$1350. The marginal tax rate of 15 percent should NOT be applied to the entire \$11,000. Alan, who has adjusted gross income of \$25,000, is planning to marry Beth, who also has adjusted gross income of \$25,000. Cathy, with adjusted gross income of \$50,000, is planning to marry David, who is a graduate student and has no income. a) Compute the marriage penalty/bonus for each of these couples (for the purposes of this calculation, you can abstract from standard deductions and other features of tax code that depend upon filing status). b) The Economic Growth and Tax Relief Reconciliation Act (EGTRRA), which was enacted during 2001, provides marriage penalty relief. The 15% joint bracket is now double the size of the 15% single bracket. This changed the two bottom brackets to be the following: Rate

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Homework 7 - Economics 1480 Homework#7 Question 1 Marriage...

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