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The Negative Income Tax Model
One idea for income tax reform is that of a negative income tax. Under this plan families with an income below a certain level receive a payment from the government in addition to their income while families above a certain level pay taxes. In one proposal a family with an earned income of $6000 would receive a $4000 payment, giving the family a disposable income of $ 10,000. Afamily with an earned incomeof $24,000 would pay $2000 in taxes, giving the family a disposable income of $22,000. A family’s disposable income D is a linear function of the family’s earned income E.
a) Use the given data to write a formula for D as a linear function of E.
b) What is the disposable income for a family with an earned income of $60,000?
c) Find the break-even point, the income at which a family pays no taxes and receives no payment.
d) What percentage of their earned income is paid in taxes for a family with an earned income of $25,000? $100,000? $2,000,000?
e) What is the maximum percentage of earned income that anyone will pay in taxes?
f) Compare your answer to part (e) with current tax laws. Does this negative income tax favor the rich, poor, or middle class?
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College Algebra (6th Edition)
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