Many economists believe that a more effective way to supplement the income of the poor is through a negative income tax. under this scheme, everyone reports his or her income to the government; individuals and families earning a higher income will pay a tax based on that income, while low-income individuals and families receive a subsidy, or negative tax. assume that the only qualification required to receive a tax credit is low income.
suppose the government uses the following equation to compute a familyâs tax liability:
taxes owed = (1/4 of income) - $10,000
1. for each of the incomes listed in the following table, determine the tax liability for a family with that income level. (note: if a family receives a subsidy because its income is too low, be sure to indicate the tax liability as negative.)
income tax liability
(dollars per year) (dollars per year)
0
20,000
40,000
60,000