This preview shows page 1. Sign up to view the full content.
Unformatted text preview: 10 percent increase in tax revenues? This is an example of what type of forecasting? This analysis is an example of dynamic forecasting. Based on the information above, the average taxpayer pays $9,750 of tax (i.e., $65,000 x 15%), leaving $55,250 of income after tax. A 10 percent increase in revenues would mean that the average taxpayer pays $10,725 in tax ($9,750 x 1.10). With this new tax amount, we can solve for the tax rate that would generate this tax amount. After-tax income = Pretax income x (1 – tax rate) After-tax income = Pretax income – (Pretax income x tax rate) After-tax income = Pretax income - Tax Substituting information from the problem results in: $55,250 = Pretax income - $10,725 Pretax income = $65,975 We can use the above formula to solve for the new tax rate. After-tax income = Pretax income x (1 – tax rate) $55,250 = $65,975 x (1 – tax rate) Tax rate = $10,725/$65,975 = 16.26%...
View Full Document
This note was uploaded on 04/04/2012 for the course ACCT 26373 taught by Professor Hall during the Spring '10 term at Texas State.
- Spring '10