Consider a negative income tax in which an individual receives a cash benefit of B per month, and pays a marginal tax M on any income earned. If an individualâs income is Y, their combined income from earnings and benefit is then B+(1-M)Y.
a) If B = $1000 per month and M equals .3, at what level of earned income Y is the cash benefit equal to the taxes paid?
b) If B is increased to $1200 and M again equals .3, what is the increase in the earned income level Y at which the cash benefit equals the taxes paid?
c) If the poverty threshold for a family of four is $2000 per month, how would you set B and M?
d) What problems do you see in using a negative income tax to support low income families?
Consider a negative income tax in which an individual receives a cash benefit of B per month, and pays a marginal tax M on any income earned. If an individualâs income is Y, their combined income from earnings and benefit is then B+(1-M)Y.
a) If B = $1000 per month and M equals .3, at what level of earned income Y is the cash benefit equal to the taxes paid?
b) If B is increased to $1200 and M again equals .3, what is the increase in the earned income level Y at which the cash benefit equals the taxes paid?
c) If the poverty threshold for a family of four is $2000 per month, how would you set B and M?
d) What problems do you see in using a negative income tax to support low income families?
Related textbook solutions
Related questions
The poverty threshold for a household with one person in 2010 was:
| A. |
about $25,600. |
|
| B. |
about $21,100. |
|
| C. |
about $11,300. |
|
| D. |
about $38,000. |
Compared to a generation ago, public aid programs that are likely to benefit families have received:
| A. |
less funding. |
|
| B. |
about the same level of funding. |
|
| C. |
no funding. |
|
| D. |
more funding. |
There is considerable ________ among the quintiles of the distribution of income, with many families moving from ________ and others moving from ________ quintiles.
| A. |
immobility; lower to lower; higher to higher |
|
| B. |
immobility; lower to higher; higher to lower |
|
| C. |
stability; lower to higher; higher to higher |
|
| D. |
mobility; higher to lower; lower to higher |
The ________ is widely used to measure income inequality.
| A. |
median household income |
|
| B. |
ability-to-pay principle |
|
| C. |
poverty rate |
|
| D. |
Gini coefficient |
Medicaid is funded by:
| A. |
private charities. |
|
| B. |
federal and state governments. |
|
| C. |
state governments only. |
|
| D. |
the federal government only. |
Private health insurance is funded by:
| A. |
members of a large pool of individuals, each paying a fixed premium to a private company that agrees to pay most of the medical expenses of the members. |
|
| B. |
tax contributions to Medicare. |
|
| C. |
the government. |
|
| D. |
people who are extremely ill who pay very high premiums. |
n the United States, the government pays _______ of all medical costs.
| A. |
between 70% and 80% |
|
| B. |
approximately 50% |
|
| C. |
100% |
|
| D. |
less than 20% |
Which of the following programs represents in-kind transfers?
| A. |
Medicaid |
|
| B. |
Temporary Assistance for Needy Families |
|
| C. |
the Earned Income Tax Credit |
|
| D. |
Social Security |
Children raised in poverty have a greater likelihood of living in poverty as adults than do those raised in nonpoor families, because low income is highly correlated with higher:
| A. |
high school dropout rates. |
|
| B. |
high school dropout rates, risk of mental problems and behavioral disorders, and with higher rates of illness and hospitalization. |
|
| C. |
risk of mental problems and behavioral disorders. |
|
| D. |
rates of illness and hospitalization. |
