Suppose that a taxpayer is in the 15 percent tax rate bracket for the federal individual income tax and faces a 5 percent state income tax rate.

(a) If the taxpayer cannot deduct either tax against the other, what is the taxpayer’s combined marginal tax rate? What is the marginal rate if the taxpayer itemizes federal deductions and deducts the state tax? What if there was reciprocal deductibility?

(b) Now recalculate all three combined marginal tax rates assuming that the state tax rate is 10 percent. How do they change?

(c) Compute your combined marginal income tax rate (federal, state, and local, if appropriate) using your income last year or that expected this year.