24. ad Tax Rates (LO3] Refer to the corporate marginal tax rate information in Table 2.3 a. Why do you think the marginal tax rate jumps up from 34 percent to 39 percent at a taxable income of $100,001, and then falls back to a 34 percent marginal rate at a taxable income of $335,001? b. Compute the average tax rate for a corporation with exactly $335,001 in taxable income. Does this confirm your explanation in part (a)? What is the average tax rate for a corporation with exactly $18,333,334? Is the same thing happening here? c. The 39 percent and 38 percent tax rates both represent what is called a tax "bubble." Suppose the government wanted to lower the upper threshold of the 39 percent marginal tax bracket from $335,000 to $200,000. What would the new 39 percent bubble rate have to be? Use the following information for Taco Swell, Inc., for Problems 25 and 26 (assume the tax rate is 34 percent) 2008 2009 $ 8,085 $ 7,233 1,038 1,085 Sales Depreciation Cost of goods sold Other expenses 2,487 591 2,942 515 Interest 485 579 4,041 3,792 5,021 5,892 Cash Accounts receivable Short-tero notes payable Long-terni dob Nel fixed assets 732 717 12,700 15,435 33.921 Accounts payable 31 805 3,984 8,927 4025 9.555 Anventory Dividends 882 1,011 CORPORATE TAX RATES Corporate tax rates in effect for 2009 are shown in Table 2.3. A peculiar feature of taxation instituted by the Tax Reform Act of 1986 and expanded in the 1993 Omnibus Budget Reconciliation Act is that corporate tax rates are not strictly increasing. As shown, corpo rate tax rates rise from 15 percent to 39 percent, but they drop back to 34 percent on income over $335,000. They then rise to 38 percent and subsequently fall to 35 percent. CHAPTER 2 Financial Statements Taxes, and Cash Flow 29 Tax Rate 1596 25 TABLE 23 Corporate Tax Rates 34 Taxable income $ 0- 50,000 50,001 - 75,000 75,001 - 100,000 100,001 - 335,000 335,001 - 10,000,000 10,000,001 - 15,000,000 115,000,001 - 18,333,333 18,333,3344 39 34 35 38 35 According to the originators of the current lax rules, there are only four corporate rates 15 percent. 25 percent, 34 percent, and 35 percent. The 18 and 39 percent brackets arise because of Nuncharges applied on top of the 34 and 35 percent rates. A tax is a tax is a tax however so there are really six corporate tax brackets, as we have shown