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recession years major tax cuts tax increases --avg. pretax income of Top 1% avg. pretax income of Top 10% --avg. pretax income of Highest Quintile --avg. pretax income of 1400 Top 5% Avg. federal taxes paid. by Top 1% --Avg. federal taxes paid by Top 5% Fig 2d. Avg pre-tax income & Avg federal tax payments by income class; Tax changes & Recessions Sources: NBER, Tax Found., CBO. (Avg federal tax payments avg. pre-tax income - avg after-tax income) --Avg. federal taxes paid by Top 10% 2000 1800 avg. pretax income of 1000 All Quintiles -Avg. federal taxes paid by All Quintiles 1600 1200 800 600 -Avg. federal taxes paid 400 by Highest Quintile 200 0 recession years major tax cuts tax increases avg. pretax income of Top 1% avg. pretax income of Top 5% avg. pretax income of Top 10% avg. pretax income of Highest Quintile avg. pretax income of All Quintiles Avg. federal taxes paid by Top 1% Avg. federal taxes paid by Top 5% Avg. federal taxes paid by Top 10% Avg. federal taxes paid by Highest Quintile Avg. federal taxes paid by All Quintiles avg. pre-tax income in thousands of $ ▬▬▬▬▬▬▬▬ A +*+*+* 2000 2000 2000 2000 600 2000 2000 550.0 518.5 514.9 537.1 588.0 647.3 695.1 904.8 731.4 921.1 857.2 822.6 741.5 840.9 807.9 833.0 918.1 1012.6 1161.2 1304.3 1419.6 1551.3 1227.8 1087.6 1160.7 1380.0 1660.4 1790.8 1873.0 248.8 236.9 232.7 238.0 250.6 274.7 285.9 344.3 306.2 346.6 338.2 324.5 304.7 330.3 323.8 334.3 358.7 384.4 423.7 461.9 492.3 522.4 444.3 406.9 430.4 485.8 555.5 582.4 611.2 182.8 176.7 174.5 176.1 184.4 199.7 206.4 238.6 220.0 241.6 239.0 230.5 220.1 233.0 231.4 237.6 249.8 267.0 287.5 308.5 328.4 344.4 303.1 283.7 295.9 327.0 362.0 377.7 394.5 140.3 135.7 134.7 134.7 139.2 148.9 152.9 172.5 162.5 174.8 173.9 168.8 162.9 170.1 170.2 173.6 181.8 190.9 202.3 214.7 227.5 236.5 213.9 203.3 210.1 227.8 246.7 256.0 264.7 63.4 61.3 61.1 60.9 61.3 64.0 65.6 70.4 68.0 71.0 71.6 70.8 69.0 70.8 71.1 720 74.7 77.2 80.3 84.2 87.8 89.2 84.2 80.6 81.8 86.3 90.5 93.3 96.0 203.4 179.3 163.8 148.5 163.2 182.8 187.7 230.7 228.2 273.4 247.5 236.6 2214 257.2 278.5 297.9 331.7 364.5 405.5 436.1 475.8 512.6 403.3 357.1 367.8 433.1 524.5 559.9 553.3 79.2 72.9 68.4 62.0 64.1 71.6 72.6 84.8 87.0 96.2 91.9 87.7 84.2 92.8 98.7 104.8 114.1 123.1 134.0 142.3 153.4 161.8 133.2 120.2 122.8 139.4 162.3 169.5 170.7 54.1 51.3 49.2 44.5 45.7 50.4 51.1 57.9 59.9 64.5 62.7 60.3 58.4 62.6 66.2 69.8 74.5 80.3 85.9 90.4 97.5 101.8 86.3 79.1 79.5 88.6 99.9 104.2 105.2 38.6 37.0 36.2 32.8 332 36.1 36.7 41.0 41.9 44.8 43.9 424 41.3 43.5 45.6 47.5 50.6 53.5 56.6 59.3 63.7 66.2 57.1 52.9 52.4 57.5 63.5 66.1 66.4 14.1 13.6 13.7 12.6 12.6 12.5 12.5 13.4 13.7 14.7 14.7 15.5 15.4 15.2 14.8 15.2 15.7 16.0 16.8 17.6 18.4 19.0 20.1 20.5 18.0 16.7 16.2 17.3 18.6 19.3 19.6 500 400 300 39 1235 10 0 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2000 2000 2000 2000 2000 2000 2000 2000 2000 2000 200 100 avg. tax payments in thousands of $

recession years major tax cuts tax increases --avg. pretax income of Top 1% avg. pretax income of Top 10% --avg. pretax income of Highest Quintile --avg. pretax income of 1400 Top 5% Avg. federal taxes paid. by Top 1% --Avg. federal taxes paid by Top 5% Fig 2d. Avg pre-tax income & Avg federal tax payments by income class; Tax changes & Recessions Sources: NBER, Tax Found., CBO. (Avg federal tax payments avg. pre-tax income - avg after-tax income) --Avg. federal taxes paid by Top 10% 2000 1800 avg. pretax income of 1000 All Quintiles -Avg. federal taxes paid by All Quintiles 1600 1200 800 600 -Avg. federal taxes paid 400 by Highest Quintile 200 0 recession years major tax cuts tax increases avg. pretax income of Top 1% avg. pretax income of Top 5% avg. pretax income of Top 10% avg. pretax income of Highest Quintile avg. pretax income of All Quintiles Avg. federal taxes paid by Top 1% Avg. federal taxes paid by Top 5% Avg. federal taxes paid by Top 10% Avg. federal taxes paid by Highest Quintile Avg. federal taxes paid by All Quintiles avg. pre-tax income in thousands of $ ▬▬▬▬▬▬▬▬ A +*+*+* 2000 2000 2000 2000 600 2000 2000 550.0 518.5 514.9 537.1 588.0 647.3 695.1 904.8 731.4 921.1 857.2 822.6 741.5 840.9 807.9 833.0 918.1 1012.6 1161.2 1304.3 1419.6 1551.3 1227.8 1087.6 1160.7 1380.0 1660.4 1790.8 1873.0 248.8 236.9 232.7 238.0 250.6 274.7 285.9 344.3 306.2 346.6 338.2 324.5 304.7 330.3 323.8 334.3 358.7 384.4 423.7 461.9 492.3 522.4 444.3 406.9 430.4 485.8 555.5 582.4 611.2 182.8 176.7 174.5 176.1 184.4 199.7 206.4 238.6 220.0 241.6 239.0 230.5 220.1 233.0 231.4 237.6 249.8 267.0 287.5 308.5 328.4 344.4 303.1 283.7 295.9 327.0 362.0 377.7 394.5 140.3 135.7 134.7 134.7 139.2 148.9 152.9 172.5 162.5 174.8 173.9 168.8 162.9 170.1 170.2 173.6 181.8 190.9 202.3 214.7 227.5 236.5 213.9 203.3 210.1 227.8 246.7 256.0 264.7 63.4 61.3 61.1 60.9 61.3 64.0 65.6 70.4 68.0 71.0 71.6 70.8 69.0 70.8 71.1 720 74.7 77.2 80.3 84.2 87.8 89.2 84.2 80.6 81.8 86.3 90.5 93.3 96.0 203.4 179.3 163.8 148.5 163.2 182.8 187.7 230.7 228.2 273.4 247.5 236.6 2214 257.2 278.5 297.9 331.7 364.5 405.5 436.1 475.8 512.6 403.3 357.1 367.8 433.1 524.5 559.9 553.3 79.2 72.9 68.4 62.0 64.1 71.6 72.6 84.8 87.0 96.2 91.9 87.7 84.2 92.8 98.7 104.8 114.1 123.1 134.0 142.3 153.4 161.8 133.2 120.2 122.8 139.4 162.3 169.5 170.7 54.1 51.3 49.2 44.5 45.7 50.4 51.1 57.9 59.9 64.5 62.7 60.3 58.4 62.6 66.2 69.8 74.5 80.3 85.9 90.4 97.5 101.8 86.3 79.1 79.5 88.6 99.9 104.2 105.2 38.6 37.0 36.2 32.8 332 36.1 36.7 41.0 41.9 44.8 43.9 424 41.3 43.5 45.6 47.5 50.6 53.5 56.6 59.3 63.7 66.2 57.1 52.9 52.4 57.5 63.5 66.1 66.4 14.1 13.6 13.7 12.6 12.6 12.5 12.5 13.4 13.7 14.7 14.7 15.5 15.4 15.2 14.8 15.2 15.7 16.0 16.8 17.6 18.4 19.0 20.1 20.5 18.0 16.7 16.2 17.3 18.6 19.3 19.6 500 400 300 39 1235 10 0 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2000 2000 2000 2000 2000 2000 2000 2000 2000 2000 200 100 avg. tax payments in thousands of $

ENGR.ECONOMIC ANALYSIS
ENGR.ECONOMIC ANALYSIS
14th Edition
ISBN:9780190931919
Author:NEWNAN
Publisher:NEWNAN
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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recession years Imajor tax cuts tax increases --avg. pretax income of Top 1% --avg. pretax income of Top 5% avg. pretax income of Top 10% avg. pretax income of Highest Quintile avg. pretax income of All Quintiles --Avg. federal taxes paid by Top →Avg. federal taxes paid by Top 5% ➡Avg. federal taxes paid by Top 10% -Avg. federal taxes paid by Highest Quintile Avg. federal taxes paid by All Quintiles Fig 2d. Avg pre-tax income & Avg federal tax payments by income class; Tax changes & Recessions Sources: NBER, Tax Found., CBO. (Avg federal tax payments = avg. pre-tax income - avg after-tax income) Increased 2000 decreased 1800 1600 1400 1200 1000 800 600 400 200 recession years major tax cuts tax increases avg. pretax income of Top 1% avg. pretax income of Top 5% avg. pretax income of Top 10% avg. pretax income of Highest Quintile avg. pretax income of All Quintiles Avg. federal taxes paid by Top 1% Avg. federal taxes paid by Top 5% Avg. federal taxes paid by Top 10% Avg. federal taxes paid by Highest Quintile Avg. federal taxes paid by All Quintiles 0 avg. pre-tax income in thousands of $ 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2000 2000 2000 2000 2000 2000 2000 2000 2000 2000 2000 2000 T 2000 2000 2000 2000 550.0 518.5 514.9 537.1 588.0 647.3 695.1 904.8 731.4 921.1 857.2 822.6 741.5 840.9 807.9 833.0 918.1 1012.6 1161.2 1304.3 1419.6 1551.3 1227.8 1087.6 1160.7 1380.0 1660.4 1790.8 1873.0 248.8 236.9 232.7 238.0 250.6 274.7 285.9 344.3 305.2 346.6 338.2 324.5 304.7 330.3 323.8 334.3 358.7 384.4 423.7 461.9 492.3 522.4 444.3 406.9 430.4 485.8 555.5 582.4 611.2 182.8 176.7 174.5 176.1 184.4 199.7 206.4 238.6 220.0 241.6 239.0 230.5 220.1 233.0 231.4 237.6 249.8 267.0 287.5 308.5 328.4 344.4 303.1 283.7 295.9 327.0 362.0 377.7 394.5 140.3 135.7 134.7 134.7 139.2 148.9 152.9 172.5 162.5 174.8 173.9 168.8 162.9 170.1 1702 173.6 181.8 190.9 202.3 214.7 227.5 236.5 213.9 203.3 210.1 227.8 246.7 256.0 264.7 63.4 61.3 61.1 60.9 61.3 64.0 65.6 70.4 68.0 71.0 71.6 70.8 69.0 70.8 71.1 72.0 74.7 77.2 80.3 84.2 87.8 89.2 84.2 80.6 81.8 86.3 90.5 93.3 96.0 203.4 179.3 163.8 148.5 163.2 182.8 187.7 230.7 228.2 273.4 247.5 236.6 221.4 257.2 278.5 297.9 331.7 364.5 405.5 436.1 475.8 512.6 403.3 357.1 367.8 433.1 524.5 559.9 553.3 79.2 72.9 68.4 62.0 64.1 71.6 72.6 84.8 87.0 96.2 91.9 87.7 84.2 92.8 98.7 104.8 114.1 123.1 134.0 142.3 153.4 161.8 133.2 120.2 122.8 139.4 162.3 169.5 170.7 54.1 51.3 49.2 44.5 45.7 50.4 51.1 57.9 59.9 64.5 62.7 60.3 58.4 62.6 66.2 69.8 74.5 80.3 85.9 90.4 97.5 101.8 86.3 79.1 79.5 88.6 99.9 104.2 105.2 38.6 37.0 36.2 32.8 33.2 36.1 36.7 41.0 41.9 44.8 43.9 42.4 41.3 43.5 45.6 47.5 50.6 53.5 56.6 59.3 63.7 66.2 57.1 52.9 52.4 57.5 63.5 66.1 66.4 14.1 13.6 13.7 12.6 12.5 13.4 13.7 14.7 14.7 15.5 15.4 15.2 14.8 15.2 15.7 16.0 16.8 17.6 18.4 19.0 20.1 20.5 18.0 16.7 16.2 17.3 18.6 19.3 19.6 600 - 500 400 300 100 0 Referring to Fig 2d and the attached table, determine whether average pre-tax income of the top 10%, top 5%, top 1% of households by income has increased or decreased following the major tax cut years of 1982, 1987, and 2002-03. avg. tax payments in thousands of $
Transcribed Image Text:recession years Imajor tax cuts tax increases --avg. pretax income of Top 1% --avg. pretax income of Top 5% avg. pretax income of Top 10% avg. pretax income of Highest Quintile avg. pretax income of All Quintiles --Avg. federal taxes paid by Top →Avg. federal taxes paid by Top 5% ➡Avg. federal taxes paid by Top 10% -Avg. federal taxes paid by Highest Quintile Avg. federal taxes paid by All Quintiles Fig 2d. Avg pre-tax income & Avg federal tax payments by income class; Tax changes & Recessions Sources: NBER, Tax Found., CBO. (Avg federal tax payments = avg. pre-tax income - avg after-tax income) Increased 2000 decreased 1800 1600 1400 1200 1000 800 600 400 200 recession years major tax cuts tax increases avg. pretax income of Top 1% avg. pretax income of Top 5% avg. pretax income of Top 10% avg. pretax income of Highest Quintile avg. pretax income of All Quintiles Avg. federal taxes paid by Top 1% Avg. federal taxes paid by Top 5% Avg. federal taxes paid by Top 10% Avg. federal taxes paid by Highest Quintile Avg. federal taxes paid by All Quintiles 0 avg. pre-tax income in thousands of $ 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2000 2000 2000 2000 2000 2000 2000 2000 2000 2000 2000 2000 T 2000 2000 2000 2000 550.0 518.5 514.9 537.1 588.0 647.3 695.1 904.8 731.4 921.1 857.2 822.6 741.5 840.9 807.9 833.0 918.1 1012.6 1161.2 1304.3 1419.6 1551.3 1227.8 1087.6 1160.7 1380.0 1660.4 1790.8 1873.0 248.8 236.9 232.7 238.0 250.6 274.7 285.9 344.3 305.2 346.6 338.2 324.5 304.7 330.3 323.8 334.3 358.7 384.4 423.7 461.9 492.3 522.4 444.3 406.9 430.4 485.8 555.5 582.4 611.2 182.8 176.7 174.5 176.1 184.4 199.7 206.4 238.6 220.0 241.6 239.0 230.5 220.1 233.0 231.4 237.6 249.8 267.0 287.5 308.5 328.4 344.4 303.1 283.7 295.9 327.0 362.0 377.7 394.5 140.3 135.7 134.7 134.7 139.2 148.9 152.9 172.5 162.5 174.8 173.9 168.8 162.9 170.1 1702 173.6 181.8 190.9 202.3 214.7 227.5 236.5 213.9 203.3 210.1 227.8 246.7 256.0 264.7 63.4 61.3 61.1 60.9 61.3 64.0 65.6 70.4 68.0 71.0 71.6 70.8 69.0 70.8 71.1 72.0 74.7 77.2 80.3 84.2 87.8 89.2 84.2 80.6 81.8 86.3 90.5 93.3 96.0 203.4 179.3 163.8 148.5 163.2 182.8 187.7 230.7 228.2 273.4 247.5 236.6 221.4 257.2 278.5 297.9 331.7 364.5 405.5 436.1 475.8 512.6 403.3 357.1 367.8 433.1 524.5 559.9 553.3 79.2 72.9 68.4 62.0 64.1 71.6 72.6 84.8 87.0 96.2 91.9 87.7 84.2 92.8 98.7 104.8 114.1 123.1 134.0 142.3 153.4 161.8 133.2 120.2 122.8 139.4 162.3 169.5 170.7 54.1 51.3 49.2 44.5 45.7 50.4 51.1 57.9 59.9 64.5 62.7 60.3 58.4 62.6 66.2 69.8 74.5 80.3 85.9 90.4 97.5 101.8 86.3 79.1 79.5 88.6 99.9 104.2 105.2 38.6 37.0 36.2 32.8 33.2 36.1 36.7 41.0 41.9 44.8 43.9 42.4 41.3 43.5 45.6 47.5 50.6 53.5 56.6 59.3 63.7 66.2 57.1 52.9 52.4 57.5 63.5 66.1 66.4 14.1 13.6 13.7 12.6 12.5 13.4 13.7 14.7 14.7 15.5 15.4 15.2 14.8 15.2 15.7 16.0 16.8 17.6 18.4 19.0 20.1 20.5 18.0 16.7 16.2 17.3 18.6 19.3 19.6 600 - 500 400 300 100 0 Referring to Fig 2d and the attached table, determine whether average pre-tax income of the top 10%, top 5%, top 1% of households by income has increased or decreased following the major tax cut years of 1982, 1987, and 2002-03. avg. tax payments in thousands of $
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Step 1: Define Tax

The tax is a compulsory or mandatory levy paid by an individual. It may be either collected as direct or indirect tax by local, state, and central governments to cover the cost of general government services. The collected tax money is used for various public expenditures in the economy. 

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