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Your high-earning great-grandparents paid federal income tax in 1963. Their total income was $165,000. a. Calculate their federal income tax bill. Income Marginal Tax Rate 20% $0 to $4,000 $4,000 to $24,000 $24,000 to $64,000 $64,000 to $164,000 $164,000 30% 54% 75% 91% Calculation Total tax bill b. What was your great-grandparents' effective (or average) federal tax rate? Tax c. How might your great-grandparents' decisions about how much to work have been influenced by their marginal tax rates?

Your high-earning great-grandparents paid federal income tax in 1963. Their total income was $165,000. a. Calculate their federal income tax bill. Income Marginal Tax Rate 20% $0 to $4,000 $4,000 to $24,000 $24,000 to $64,000 $64,000 to $164,000 $164,000 30% 54% 75% 91% Calculation Total tax bill b. What was your great-grandparents' effective (or average) federal tax rate? Tax c. How might your great-grandparents' decisions about how much to work have been influenced by their marginal tax rates?

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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### Federal Income Tax Calculation for 1963 **Context:** Your high-earning great-grandparents paid federal income tax in 1963. Their total income was $165,000. #### a. Calculate their federal income tax bill: | Income | Marginal Tax Rate | Calculation | Tax | |----------------------------|-------------------|-------------|-----| | $0 to $4,000 | 20% | | | | $4,000 to $24,000 | 30% | | | | $24,000 to $64,000 | 54% | | | | $64,000 to $164,000 | 75% | | | | > $164,000 | 91% | | | | | | **Total tax bill** | | ### Questions: #### b. What was your great-grandparents’ effective (or average) federal tax rate? #### c. How might your great-grandparents’ decisions about how much to work have been influenced by their marginal tax rates? --- **Explanation:** The table outlines a graduated tax system with increasing marginal tax rates for different income brackets. This setup requires calculating the tax for each bracket up to the total income to determine the overall tax bill. Understanding marginal rates can clarify how taxation impacts earnings and work incentives.
Transcribed Image Text:### Federal Income Tax Calculation for 1963 **Context:** Your high-earning great-grandparents paid federal income tax in 1963. Their total income was $165,000. #### a. Calculate their federal income tax bill: | Income | Marginal Tax Rate | Calculation | Tax | |----------------------------|-------------------|-------------|-----| | $0 to $4,000 | 20% | | | | $4,000 to $24,000 | 30% | | | | $24,000 to $64,000 | 54% | | | | $64,000 to $164,000 | 75% | | | | > $164,000 | 91% | | | | | | **Total tax bill** | | ### Questions: #### b. What was your great-grandparents’ effective (or average) federal tax rate? #### c. How might your great-grandparents’ decisions about how much to work have been influenced by their marginal tax rates? --- **Explanation:** The table outlines a graduated tax system with increasing marginal tax rates for different income brackets. This setup requires calculating the tax for each bracket up to the total income to determine the overall tax bill. Understanding marginal rates can clarify how taxation impacts earnings and work incentives.
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