Suppose there is a simple tax system that says you pay 10% for income up to $10,000, 25% for income between $10,000 and $50,000, and 35% for all income above $50,000. Mr. Campbell has income of $72,000. Mrs. Campbell has income of $55,000.

(A) What is Mr. Campbell's individual tax liability? Mrs. Campbell's?
(B) What is their liability if they file a joint return?
(C) Is there a marriage penalty? If so, how much is it?


(A) Mr. Campbell: [(10,000 * 0.10) + (40,000 * 0.25) + (22,000 * 0.35)] = $18,700.
Mrs. Campbell: [(10,000 * 0.10) + (40,000 * 0.25) + (5,000 * 0.35)] = $12,750.
Total tax if filed separately = 18,700 + 12,750 = $31,450.
(B) Jointly: [(10,000 * 0.10) + (40,000 * 0.25) + (77,000 * 0.35)] = $37,950.
(C) Yes, the difference is $37,950 - $31,450 = $6,500.

Economics

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