3.4 (Macro): Progressive Tax: Calculate Tax Rate, ATR, MTR: Paper 3 (HL), Part 2: 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.

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 ...  

Tax Foundation, 2024 US Tax Brackets: https://taxfoundation.org/data/all/fe...
Tax Foundation on Wikipedia: https://en.wikipedia.org/wiki/Tax_Fou...

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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...  

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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. (at time 1:25)

Average tax rate = Tax paid divided by total income and multiplied by 100 so that it is expressed as a percentage. (at time 1:44)
• 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 2:40)
The marginal income tax rates in Country X 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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Part 1 of 3.4 Calculate Total & Average Tax Rate from a set of data:    • 3.4 (Macro): Progressive Tax: Calculate Ta...  

Steve earns 120,000 annually and Mary earns 255,000 annually. (at time 2:38)

(a)(i) Using the information in Table 1, calculate Steve’s total income tax. (at time 2:38)
(ii) Using your answer to part (i), calculate Steve’s average tax rate. (at time 2:55)
(iii) State Steve’s marginal tax rate. (at time 3:34)

(iv) Using the information in Table 1, calculate Mary’s total income tax. (at time 4:15)
(v) Using your answer to part (iv), calculate Mary’s average tax rate. (at time 9:00)
(vi) State Mary’s marginal tax rate. (at time 10:00)

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Part 1: Calculations for questions (a)(i) to (iii)
(i) Workings (at time 2:30)
Steve earns 120,000 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

*120,000 - 100,000 = 20,000
20,000 x 0.24 = 4,800

Total Tax = 1,100 + 4,320 + 11,660 + 4,800 = 21,880
Total Tax = 21,880

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(ii) Workings (at time 2:55)
Average Tax Rate = ATR = (Total Tax / Total Income) x 100
ATR = (21,880 / 120,000) x 100
ATR = 18.23%

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(iii) Workings (at time 3:34)
Steve's Marginal Tax Rate = 24%

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Calculations and workings for questions (iv) to (vi)
(iv) Workings (at time 4:15)
Mary earns 255,000 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 = 20,000
90,000 x 0.24 = 21,600

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

255,000 - 250,000 = 5,000
5,000 x 0.35 = 1,750

Total Tax = 1,100 + 4,320 + 11,660 + 21,600 + 19,200 + 1,750 = 59,630
Total Tax = 59,630

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(ii) Workings (at time 2:50)
Average Tax Rate = ATR = (Total Tax / Total Income) x 100
ATR = (59,630 / 255,000) x 100
ATR = 23.38%

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(iii) Workings (at time 10:00)
Mary's Marginal Tax Rate = 35%