2. Suppose a tax payer faces a federal marginal income tax rate of 25% and pays local property taxes of $2,000 per year.

a. Assume the taxpayer itemizes federal deductions and, thus, deducts the local property tax. No state income tax deduction for local taxes exists. What is the net after-tax cost of property taxes to this taxpayer? (2 points)

b. Suppose the state introduces an income tax credit of 25% of property taxes up to a maximum of $600. What is the taxpayers net property tax cos now? (Remember that the state income tax is also deducted against the federal tax.) How much does the net cost fall because of the credit? (2 points)