Family A earns $32,000 a year and Family B earns $70,000 a year. Both families each receive a ten percent raise. What is the marginal tax rate of each and what is the extra tax paid by each after the raise?
Family A’s new income is $35,200 which falls into the third tax bracket. Thus, their new marginal rate is 20 percent rate and so they will pay $640 in extra taxes ($3200*0.20 ); Family B’s new income is $77,000 which falls into the last tax bracket. Thus, their new marginal tax rate is 40 percent and so they will pay $2800 in extra taxes ($7000*0.40 ).