You will have 1 hour and 20 minutes to complete the following exam. Please label graphs clearly and explain steps thoroughly in order to get full credit. I. Part 1: Problems 1. The U.S. Income Tax System Suppose there are two hypothetical taxpayers, Mitt and Newt. Mitt carned $350,000 annually in wage income and Newt earned $2 million annually in wage income. Also, suppose that earnings below $40,000 are taxed at a 10% marginal rate, carnings between $40,000 and $80,000 are taxed at a 20% marginal rate and earnings above $80,000 are taxed at a marginal rate of 30%. a. (6 points) Assuming that there are no adjustments, deductions or credits, calculate the tax liability of Mitt and Newt. Hitt Newt 40,000. 10%0 = 4,000 40,000 . 10%% = 4 080 40, 000 : 20%0 $,coo 40, 000 . 20% = $,000 (350,000- 80,000) 30%= 190 030 81, 000 CAREER -9301 (21000,000 - 80,000) 30% = 57, 588 0 b. Suppose that there is a standard deduction of $3,000 and that Mitt initially has $4,000 in itemized deductions, while Newt has $2,500 in itemized deductions. i. (6 points) Suppose that the tax code treats interest paid on home mortgages as an adjustment to income and that both taxpayers have home mortgage loan interest payments of $1,000 per year. Calculate the taxes saved due to the adjustment for each taxpayer