Charles and Ann live for two periods. They each have labour income in period 0, I0 =
Question:
Charles and Ann live for two periods. They each have labour income in period 0, I0 = $100,000, and they retire in period 1 without any income, I1 = 0. Charles is not concerned about the future that much and prefers to consume most of his earnings in the present (in period 0), Cc = $60,000. On the contrary, Ann is more concerned about her retirement and chooses to consume less in the present, Ca = $40,000. The market interest rate is r = 9%. Income tax rate is tinc = 15%, and applies to both labour income and interest income. 1) Who has a higher lifetime tax burden under an income taxation system? 2) Who has a higher lifetime burden under proportional consumption tax assuming there is only consumption tax tcons = 4%?
Fundamentals of Investing
ISBN: 978-0133075359
12th edition
Authors: Scott B. Smart, Lawrence J. Gitman, Michael D. Joehnk