Congress would like to increase tax revenues by 17 percent A

Congress would like to increase tax revenues by 17 percent. Assume that the average taxpayer in the United States earns $52,000 and pays an average tax rate of 20 percent. a. If the income effect is in effect for all taxpayers, what average tax rate will result in a 17 percent increase in tax revenues.? (Round your answer to 2 decimal places.)

a. Averge tax rate

b. This is an example of what type of forecasting?

Solution

The increased average tax rate will be :

a) 20*1.17 % = 23.4 %

b) if everyone has to pay taxes than the 17% increased tax amount will also be liable for tax than:

20*1.225 % = 24.50 % , ( 20 + (20*22.5%-24.5%) = 23.4 or 20*1.17)