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ENGR.ECONOMIC ANALYSIS
14th Edition
ISBN: 9780190931919
Author: NEWNAN
Publisher: Oxford University Press
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Many economists believe that a more effective way to supplement the income of the poor is through a negative income tax. Under this scheme, everyone reports his or her income to the government; individuals and families earning a higher income will pay a tax based on that income, while low-income individuals and families receive a subsidy, or negative tax. Assume that the only qualification required to receive a tax credit is low income.

Transcribed Image Text:Many economists believe that a more effective way to supplement the income of the poor is through a negative income tax. Under this scheme,
everyone reports his or her income to the government; individuals and families earning a higher income will pay a tax based on that income, while
low-income individuals and families receive a subsidy, or negative tax. Assume that the only qualification required to receive a tax credit is low
income.
Suppose the government uses the following equation to compute a family's tax liability:
Tazes Owed =
(1/4 of Income) – $10,000
For each of the incomes listed in the following table, determine the tax liability for a family with that income level. (Note: If a family receives a
subsidy because its income is too low, be sure to indicate the tax liability as negative.)
Income
Tax Liability
(Dollars per year) (Dollars per year)
20,000
40,000
60,000
True or False: If a family is currently receiving a tax credit, the credit is reduced by $0.50 for each additional dollar earned until the family reaches an
income of $40,000 and the credit becomes $0.
True
O False
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- One of the major problems in dealing with any welfare program is the tension between individual and social responsibility- Medicare is no different. Should adult children be responsible for the medical expenses of their parents? No. Where does individual and familiar Responsibility end and social responsibility begin?arrow_forwardFill in the blanks below. The info reported in the graphic shows that the current estimate is that ___________% of the global population now live in extreme poverty, using a measure based on a $1.90 per day wage. The figure is adjusted using the cost of living and inflation, and it also takes into account the minimum needed for daily essentials in places where poverty is prevalent. In comparison, some 1.9 billion, then about __________% of the world population, were living in extreme poverty in 1980.arrow_forwardConsider a society consisting of two people. Jacques earns an income of $100,000 per year and Kyoko earns an income of $30,000 per year. The government is considering a redistribution plan that would impose a 25% tax on Jacques's income and give the revenue to Kyoko. Without any incentive distortion, Jacques would retain $75,000 and Kyoko would end up with $55,000. However, let us assume that since Jacques will not receive all the income he earns, he decides to work less and earn an income of only $90,000, of which 25%×$90,000=$22,50025%×$90,000=$22,500 will be owed in taxes. With the redistribution plan, Jacques will take home an income of . The $22,500 that Jacques pays in taxes will be transferred by the government to Kyoko. Let us assume that since Kyoko now receives payment from the government, she will not work as many hours and will earn an income from work of only $29,000 instead of her initial $30,000. With the redistribution plan, Kyoko's total income…arrow_forward
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