In Transylvania the basic income tax system is fairly simple.
The first 40,000 sylvers (the official currency of Transylvania)
earned each year are free of income tax. Any additional income
is taxed at a rate of 25%. In addition, every individual pays a
social security tax, which is calculated as follows: all income up
to 80,000 sylvers is taxed at an additional 20%, but there is no
additional social security tax on income above 80,000 sylvers.
a. Calculate the average and the marginal tax rates for
Transylvanians with the following levels of income:
20,000 sylvers, 40,000 sylvers, 80,000 sylvers, and
120,000 sylvers.
b. For each of the income levels in part (a), is the tax system
progressive, regressive, or proportional?