Any income tax schedule embodies two types
of tax rates: average tax rates and marginal tax
rates.
a. The average tax rate is defined as total taxes
paid divided by income. For the proportional
tax system presented in Table 7, what are
the average tax rates for people earning
$50,000, $100,000, and $200,000? What are
the corresponding average tax rates in the
regressive and progressive tax systems?
b. The marginal tax rate is defined as the extra
taxes paid on additional income divided
by the increase in income. Calculate the
marginal tax rate for the proportional tax
system as income rises from $50,000 to
$100,000. Calculate the marginal tax rate
as income rises from $100,000 to $200,000.
254 PART Iv The economics of The Public secTor
b. Looking at the combined revenue of the
federal government and state and local
governments, how has the composition
of total revenue changed over time?
Are personal income taxes more or less
important? Social insurance taxes? Corporate
profits taxes?
c. Looking at the combined expenditures of
the federal government and state and local
governments, how have the relative shares
of transfer payments and purchases of goods
and services changed over time?