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Marginal and average tax rates Using the tax rate schedule given in Table 1.2, per-form...

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Finance

Marginal and average tax rates Using the tax rate schedule given in Table 1.2, per-form the following: a. Calculate the tax liability, after-tax earnings, and average tax rates for the fol-lowing levels of partnership earnings before taxes: $10,000; $80,000; $300,000; $500,000; $1 million; $1.5 million; and $2 million. b. Plot the average tax rates (measured on the y-axis) against the pretax income lev-els (measured on the x-axis). What generalization can be made concerning the relationship between these variables?

Taxable income brackets

Base tax

+

(Marginal rate X amount over bracket lower limit)

$

0 to $50,000

$

0

+

(15% X amount over $ 0)

50,000 to 75,000

$

7,500

+

(25% X amount over $ 50,000)

75,000 to 100,000

$

13,750

+

(34% X amount over $ 75,000)

100,000 to 335,000

$

22,250

+

(39% X amount over $ 100,000)

335,000 to 10,000,000

$

113,900

+

(34% X amount over $ 335,000)

10,000,000 to 15,000,000

$

3,400,000

+

(35% X amount over $ 10,000,000)

15,000,000 to 18,333,333

$

5,150,000

+

(38% X amount over $ 15,000,000)

Over 18,333,333

$

6,416,667

+

(35% X amount over $ 18,333,333)

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