3.4 (Macro): Progressive Tax: Calculate Tax Rate, ATR, MTR: Paper 3 (HL), Part 3: Inequality,Poverty

Описание: Video tutorial for IB Econ students illustrating how to calculate (HL only) the total tax rate and average tax rate from a set of data.
In addition, a change in the top marginal tax rate is also calculated.
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Playlist: Macro, Global: Economics of inequality and poverty, Measuring development:
   • Macro, Global: Economics of inequality and...  
Playlist: Micro, Macro, Global: Calculations: Paper 2, 3
   • Micro, Macro, Global: Calculations: Paper ...  
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Tax Foundation, 2024 US Tax Brackets: https://taxfoundation.org/data/all/fe...
Tax Foundation on Wikipedia: https://en.wikipedia.org/wiki/Tax_Fou...
Tax Foundation, 2024 Personal Income Tax Rates in Europe: https://taxfoundation.org/data/all/eu...
Taxation in Austria: https://en.wikipedia.org/wiki/Taxatio...
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Freakonomics (‪@Freakonomics‬) Season 14, Episode 31: "Ten Myths About the U.S. Tax System": https://freakonomics.com/podcast/seas...
"Tens Myths About the U.S. Tax System" on YouTube:    • 626. Ten Myths About the U.S. Tax System |...  
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Part 1 of 3.4 Calculate Total & Average Tax Rate from a set of data:    • 3.4 (Macro): Progressive Tax: Calculate Ta...  
Part 2 of 3.4 Calculate Total & Average Tax Rate from a set of data:
   • 3.4 (Macro): Progressive Tax: Calculate Ta...  
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Progressive taxation = A form of taxation in which as income increases, the proportion of income paid as taxes increases. As a result, the average tax rate increases.

Average tax rate = Tax paid divided by total income and multiplied by 100 so that it is expressed as a percentage.
• ATR = (Tax / Total Income) x 100

Marginal tax rate = The proportion of any additional income, which must be paid as tax. Typically refers to the tax rate that applies to the highest tax bracket of an individual’s income. (at time 2:25)
• Change (Δ) in tax (T) as a result of a change (Δ) in income (Y)
• MTR = (Δ Tax / Δ Income)
• MTR = (Δ T / Δ Y)
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Paper 3 type question (at time 7:00)
The marginal income tax rates in the US are provided in Table 1.

Table 1
Annual Income ($US) for Single Filers and Marginal Income Tax Rate (%)
0 - 11,000 at MTR of 10
11,001 - 47,000 at MTR of 12
47,001 - 100,000 at MTR of 22
100,001 - 190,000 at MTR of 24
190,001 - 250,000 at MTR of 32
250,001 - 600,000 at MTR of 35
600,001 or more at MTR of 37
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John earns $755,000 annually.

(a)(i) Using the information in Table 1, calculate John’s total income tax.
(ii) Using your answer to part (i), calculate John’s average tax rate.
(iii) State John’s marginal tax rate.

(iv) Using the information in Table 1, calculate the additional income tax John would pay if the US central government decided to increase the marginal tax rate for incomes over $600,001 to 50%, as it is in Austria since 2016.

(v) Using your answer to part (iv), calculate John’s average tax rate.
(vi) With reference to part (iv), state John’s marginal tax rate.
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Part 1: Calculations for questions (a)(i) to (iii)
(i) Workings (at time 7:45)
John earns 755,000 annually
11,000 - 0 = 11,000
11,000 x 0.10 = 1,100

47,000 - 11,000 = 36,000
36,000 x 0.12 = 4,320

*100,000 - 47,000 = 53,000
53,000 x 0.22 = 11,660

*190,000 - 100,000 = 90,000
90,000 x 0.24 = 21,600

250,000 - 190,000 = 60,000
60,000 x 0.32 = 19,200

600,000 - 250,000 = 350,000
350,000 x 0.35 = 122,500

755,000 - 600,000 = 155,000
155,000 x 0.37 = 57,350

Total Tax = 1,100 + 4,320 + 11,660 + 21,600 + 19,200 + 122,500 + 57,350 = $237,730.00
Total Tax = $237,730.00
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(ii) Workings (at time 14:12)
Average Tax Rate = ATR = (Total Tax / Total Income) x 100
ATR = (237,730 / 755,000) x 100
ATR = 31.49%
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(iii) Workings (at time 15:20)
John's Marginal Tax Rate = 37%
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Calculations and workings for questions (iv) to (vi)
(iv) Workings (at time 16:14)
John earns 155,000 annually within the highest tax bracket of 37%
This amount will face a higher tax rate of 50%
Thus, we will calculate the additional amount of income tax paid by John as a result of an increase in the MTR from 37% to 50%
755,000 - 600,000 = 155,000
155,000 x 0.50 = 77,500
155,000 x 0.37 = 57,350

77,500 - 57,350 = $20,150
John will pay an additional $20,150 in income tax as a result of the increase in the MTR from 37% to 50%

or (at 21:18)

0.50 - 0.37 = 0.13
155,000 x 0.13 = $20,150

or (at 19:48)

755,000 - 600,001 = 154,999
154,999 x 0.50 = 77,499.50
154,999 x 0.37 = 57,349.63

77,499.50 - 57,349.63 = $20,149.87
John will pay an additional $20,149.87 in income tax as a result of the increase in the MTR from 37% to 50%

or

0.50 - 0.37 = 0.13
154,999 x 0.13 = $20,149.87
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(v) Workings (at time 22:40)
Average Tax Rate = ATR = (Total Tax / Total Income) x 100
ATR = ((237,730 + 20,150) / 755,000)) x 100
ATR = 34.16%
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(vi) Workings (at time 25:10)
John's new Marginal Tax Rate = 50%