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(58)[LO5] Consider the following tax rate structure. Is it horizontally equitable?
(59)[LO1,LO4 PLANNING] Lorenzo is considering starting a trucking company either in Texas or Oklahoma. He will relocate his family, which includes his wife, children, and parents, to reside in the same state as his business. What types of taxes may influence his decision of where to locate his business? real estate taxes (business and personal), (5) estate taxes (e.g., for wealth transfers from his parents), and (6) sales taxes. (60)[LO5 PLANNING] Congress would like to increase tax revenues by 10 percent. Assume that the average taxpayer in the United States earns $65,000 and pays an average tax rate of 15 percent. If the income effect is in effect for all taxpayers, what average tax rate will result in a 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 - TaxSubstituting information from the problem results in:$55,250 = Pretax income - $10,725Pretax income = $65,975We 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%1-21
Chapter 01 - An Introduction to Tax22
Chapter 01 - An Introduction to Tax(61)[LO5 RESEARCH] Locate the IRS Web site at . For every $100 the IRS collected, how much was spent on the IRS collection efforts? What tax system criterion does this information help you to evaluate with respect to the current U.S. tax system?(62)[LO4 RESEARCH] Using the Internet, find a comparison of income tax rates across states. What state currently has the highest income tax rate? In considering individual tax burdens across states, what other taxes should you consider?