Question

Taxable Income and Total Tax Liability are in thousands.

Ranges of Adjusted Gross Income
Item	Under $15,000				$15,000 to under $30,000				$30,000 to under $50,000				$50,000 to under $100,000				$100,000 to under $200,000				$200,000 or more
Number of returns		33,998,665				29,548,721				27,127,608				34,537,027				20,094,853				7,788,785
Taxable income	$	21,439,540			$	213,668,669			$	578,082,715			$	1,661,992,914			$	2,055,707,167			$	3,408,931,866
Total tax liability	$	1,891,136			$	18,881,170			$	59,565,261			$	218,856,282			$	343,280,695			$	945,200,723
Average tax rate*		8.82	%			8.84	%			10.30	%			13.17	%			16.70	%			27.73	%

*The average tax rate is total tax liability divided by taxable income.

Required:

1. If the federal tax system was changed to a proportional tax rate structure with a tax rate of 17%, calculate the amount of tax liability for 2017 for all taxpayers.
2. What is the amount and nature of difference from actual tax liability specified in the above table?

If the federal tax system was changed to a proportional tax rate structure with a tax rate of 17%, calculate the amount of tax liability for 2017 for all taxpayers. (Consider intermediate computations in thousands of dollars, rounded to the nearest whole number. Enter your final answer in dollars and not in thousands of dollars.)

	Amount of tax liability

hat is the amount and nature of difference from actual tax liability specified in the above table? (Input your answer as a positive number. Consider intermediate computations in thousands of dollars, rounded to the nearest whole number. Enter your final answer in dollars and not in thousands of dollars.)

	Amount Nature Difference

Answer 1

Please find attached table which shows calculation of tax liability at proportional rate of 17% and difference in amount:

TABLE A: Item Number of returns Taxable income Total tax liability Ranges of Adjusted Gross Income (different tax rate for different tax slab) Under $15,000 $15,000 to under $30,000 $30,000 to under $50,000 $50,000 to under $100,000 $100,000 to under $200,000 $200,000 or more Total (in $ '000s) 33998665 29548721 27127608 34537027 20094853 7788785 $ 21,439,540 $ 213,668,669 $ 578,082,715 $ 1,661,992,914 $ 2,055,707,167 $ 3,408,931,866 $ 7,939,822,871 $ 1,891,136 $ 18,881,170 $ 59,565,261 $ 218,856,282 $ 343,280,695 $ 945,200,723 $ 1,587,675,267 Average tax rate(Total tax liability / Taxable income 8.82% 8.84% 10.30% 13.17% 16.70% 27.73% 20.00% TABLE B: Item Number of returns Taxable income Total tax liability (rounded off to O decimal places) Ranges of Adjusted Gross Income (Proportional tax rate of 17% for all tax slab) Under $15,000 $15,000 to under $30,000 $30,000 to under $50,000 $50,000 to under $100,000 $100,000 to under $200,000 $200,000 or more Total (in $ '000s) 33998665 29548721 27127608 34537027 20094853 7788785 $ 21,439,540 $ 213,668,669 $ 578,082,715 $ 1,661,992,914 $ 2,055,707,167 $ 3,408,931,866 $ 7,939,822,871 $ 3,644,722 $ 36,323,674 | $ 98,274,062 $ 282,538,795 $ 349,470,218 $ 579,518,417 | $ 1,349,769,888 Average tax rate(Total tax liability / Taxable income 17.00% 17.00% 17.00% 17.00% 17.00% 17.00% 17.00% Amount of total tax liability (in $ and not in $'000s) $ 1,349,769,888,000 Difference between Table A and Table B Under $15,000 $15,000 to under $30,000 $30,000 to under $50,000 $50,000 to under $100,000 $100,000 to under $200,000 $200,000 or more Total (in $ '000s) Item Total tax liability (Difference between Table A & Table B) $ -1,753,586 $ -17,442,504 $ -38,708,801 $ -63,682,513 $ -6,189,523 $ 365,682,306 $ 237,905,379 Average tax rate(Total tax liability / Taxable income -8.18% -8.16% -6.70% -3.83% -0.30% 10.73% 3.00% Amount of difference in $ and not in $'000s) $ 237,905,379,000

Amount of total tax liability (in $ and not in $'000s) = $ 1,349,769,888,000

Amount of difference (in $ and not in $'000s) = $ 237,905,379,000

Nature of difference = Under proportional tax structure, Low income people are paying more taxes whereas High income people are paying less taxes.