Reference no: EM132200833
Question: The National Bureau of Economic Research (NBER) has a tax calculator called TAXSIM that allows you to calculate tax liabilities for a given individual in a given year. You are going to calculate federal marginal tax rates for a single parent, age 40, with 2 children, ages 16 and 12, respectively, for four years (1984, 1994, 2004, and 2014) and at two real income levels ($20,000 in 2014 dollars and $100,000 in 2014 dollars):
a. (4 points) Go to this website and calculate liabilities for one taxpayer under the following assumptions: tax year is 2014 (field 2); marital status is 1 for head of household (field 4); age of the primary taxpayer is 40 (filed 5); dependent exemptions is 2 (field 7); number of dependents under age 13 is 1 (field 8); number of dependents under age 17 is 1 (field 9); number of dependents under age 18 is 2 (field 9); and wage and salary income of taxpayer is $20,000 (field 11). Leave all other boxes at the default values. Hit the button calculate this single taxpayer, and line #7 of the output give the federal marginal tax rate for that individual. What is that federal marginal tax rate?
b. Now, I want you to find out what has happened to federal marginal tax rates for someone in a similar economic position in past years. To do so, you will repeat this process in #a holding real earnings constant, but the calculations will be for 2004, 1994, and 1984, respectively. TAXSIM uses nominal earnings as the input to field 11. So, you will need to find out how much $20,000 in 2014 dollars was in 2004 to get the right nominal earnings for the 2004 calculation. To do so, you can use the BLS inflation calculator.
1. What was the nominal earnings you used for 2004?
2. What was the marginal tax rate in 2004?
3. What was the nominal earnings you used for 1994?
4. What was the marginal tax rate in 1994?
5. What was the nominal earnings you used for 1984?
6. What was the marginal tax rate in 1984?
c. Based on your calculations in #a and #b, what has happened to federal marginal tax rates over the last 30 years for a single parent with two children and real earnings of $20,000?
d. How do you think the pattern you found in #c has affected the labor supply of low-income single parents? Briefly explain your reasoning.
e. Repeat the calculations in #a and #b for the same single parent with 2 children, but with $100,000 in real earnings (in 2014 dollars).
1. What has happened to federal marginal tax rates over the last 30 years for a single parent in this economic position?
2. How do you think the pattern you found in #e1 has affected the labor supply of this group of single parents? Briefly explain your reasoning.
f. Repeat the calculations in #a and #b for the same single parent with 2 children in 2018, with $20,000 in real earnings (in 2014 dollars). What will happen to the federal marginal tax rate in 2018 vs. 2014 for a single parent with two children and real earnings of $20,000 due to the Trump Tax Law? Do you think this change will increase or decrease the labor supply of a single parent with two children and real earnings of $20,000? Briefly explain your reasoning.