15. Suppose a small economy has two income tax rates: 15% for all income up to $50,000 and 30% for any income earned above $50,000. Suppose that prior to the recession, the economy had five workers earning the following salaries:
Amy………………………………. $20,000
Betty……………………………… $40,000
Charlie……………………………. $60,000
Dimitry…………………………… $80,000
Evelyn…………………………….. $100,000
a. Calculate the total tax revenues paid by the five workers. What percent of total income does this represent?
b. Now assume that a recession causes each of the five salaries to fall by 25%. Given the lower salaries, what would be the total tax revenues paid by the five workers? What percent of total income does this represent?
c. Explain how this progressive tax structure acts as an automatic stabilizer.