Question

4.) you are offered a choice between paying a flat tax (one rate on all income) of 22% on $87,000 of income and paying a graduated tax of the following schedule on the same income. graduated schedule: 10% up to $11,000, 12% from $11,001 up to $44,725, and 22% from $44,726 up to $95,375. which is better for you, the flat tax or graduated tax? (14 points)

Explanation:

Step1: Calculate flat tax

Flat tax rate is 22% on $87,000. So flat tax = \( 0.22 \times 87000 \)
\( 0.22\times87000 = 19140 \)

Step2: Calculate graduated tax

• First bracket: 10% up to $11,000. Tax = \( 0.10 \times 11000 = 1100 \)
• Second bracket: 12% from $11,001 to $44,725. The amount in this bracket is \( 44725 - 11000 = 33725 \). Tax = \( 0.12 \times 33725 = 4047 \)
• Third bracket: 22% from $44,726 to $87,000. The amount in this bracket is \( 87000 - 44725 = 42275 \). Tax = \( 0.22 \times 42275 = 9300.5 \)
• Total graduated tax = \( 1100 + 4047 + 9300.5 = 14447.5 \)

Step3: Compare flat and graduated tax

Flat tax is $19,140 and graduated tax is $14,447.5. Since \( 14447.5 < 19140 \), graduated tax is less.

Answer:

The graduated tax is better as it amounts to $14,447.5 compared to the flat tax of $19,140.