Chapter 4, Problem 23AP

Assume that Congress amends the tax law to provide for a maximum 20 percent rate on royalty income. Calculate the annual tax savings from this new preferential rate to each of the following taxpayers.

1. a. Ms. A, who is in a 37 percent marginal tax bracket and receives $8,000 royalty income each year.
2. b. Mr. B, who is in a 32 percent marginal tax bracket and receives $15,000 royalty income each year.
3. c. Mr. C, who is in a 10 percent marginal tax bracket and receives $3,000 royalty income each year.
4. d. Mrs. D, who is in a 24 percent marginal tax bracket and receives $70,000 royalty income each year.