Basic Income Tax Terminology & Concepts

Ag Econ 1042
Eighth Quiz, 30 points
Due April 10, 2008
Name ____________KEY___________________
Basic Income Tax Terminology & Concepts
All information can be found at
12 pts. Part I
Suppose Brandy has wages of $60,000 and interest income of $510 for 2007. She will
qualify for one exemption (herself), has no dependents and is not a dependent on
another’s tax return. You need to determine her income tax due using Form 1040 EZ.
Based on the above information, determine:
a) adjusted gross income _____60510_________________
b) marginal tax bracket _______26%___________________
c) show computation of marginal rate ____13/50 = 26%__________________
d) her average tax rate _____15.5%________________
e) overall federal tax payment ___9368__________________
f) taxable income ____51760__________________
10 pts. Part II
James has a better paying job making $70,000 a year and expected interest income of
$1410 per year. He is not a dependent on another’s tax return. Now estimate:
a) marginal tax bracket ____26%______________
b) his average tax rate ____16.9%______________
c) overall federal tax payment ___12093_____________
d) why is the marginal bracket % different than 25%?
e) attach a completed 1040EZ form with a staple
8 pts. Part III
The U.S. government plans on reducing income taxes by $100B. Assume there are no
leakages. If the MPC = 0.95, what is the initial change in income and the final change in
expenditures or income after all multiplier effects.
Initial ______0_______________
Final _____$1.9 T_______________
Show how you computed the final income change.
.95 = 19 x 100 = $1.9T
How do leakages impact the multiplier?
Reduce it
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