Answer:
Joe's tax under the 17% flat tax:
a) If the tax is based on Joe's entire $900,000 total earnings for 2016, his
Income tax = $153,000 ($900,000 * 17%)
b) If the tax is applied on the taxable income of $450,000 assuming some deductions are allowed, Joe's
Income tax = $76,500 ($450,000 * 17%)
Explanation:
a) Data and Calculations:
Joe's taxable income for 2016 = $450,000 after various deductions
Joe's taxable income for 2016 = $900,000 without deductions
Proposed rate of flat tax = 17%
b) A flat tax applies the same rate of tax on the income of all taxpayers in determining their tax liabilities. It does not consider the different individual earnings. It is the opposite of the current progressive tax rates system in which the percentages of tax increase as the taxpayer's income rises.
The flat tax system describes the usage and application of a single tax rate on taxable income rather than a the varying tax rate which represents a progressive rate system. Hence, Joe's tax under the flat tax system would be $76500.
Given the Parameters :
Joe's tax amount is calculated thus :
Tax amount = $450,000 × 0.17
Tax amount = $76,500
Hence, Joe's tax amount would be $76,500
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