Tax Calculation

Range of taxable Income Base tax Marginal rate x amount over base bracket)

0 to $50,000 $ 0 + (15% x amount over 0)

50,000 to 75,000 7,500 (25 x amount over 50,000)

75,000 to 100,000 1,370 (34 x amount over 75,000)

100,000 to 335,000 22,250 (39 x amount over 100,000)

335,000 to 10,000,000 113,900 (34 x amount over 335,000)

10,000.000 to 15,000,000 3,400,000 (35 x amount over 10,000,000)

15,000,000 to 18,333,333 5,150,000 (38 x amount over 15,000,000)

Over 18,333,333 6,416,667 (35 x amount over 18,333,333)

a. Calculate tax liability, after-tax earnings, and after tax rates for the following levels of corporate earnings before taxes: $10,000; $300,000; $500,000; $1.5 million; $10 million and $20 million.

b. Plot the marginal tax rates (measured on the y-axis) against the pre-tax income levels (measured on the x-axis) What generalization can be made concerning the relationship between these two variables?