Tax Rates Refer to the corporate marginal tax rate information.

a. Why do you think the marginal tax rate jumps up from 34 percent to 39 percent at a taxable income of $100,001, and then falls back to a 34 percent marginal rate at a taxable income of $335,001?

b. Compute the average tax rate for a corporation with exactly $335,001 in taxable income. Does this confirm your explanation in part (a)? What is the average tax rate for a corporation with exactly $18,333,334? Is the same thing happening here?

c. The 39 percent and 38 percent tax rates both represent what is called a tax “bubble.” Suppose the government wanted to lower the upper threshold of the 39 percent marginal tax bracket from $335,000 to $200,000. What would the new 39 percent bubble rate have to be?

Use the following information for Taco Swell, Inc., for Problems 25 and 26 (assume the tax rate is 34 percent):

	2001	2002
Sales	$2,870	$3,080
Depreciation	413	413
Cost of goods sold	987	1,121
Other expenses	238	196
Interest	192	221
Cash	1,505	1,539
Accounts receivable	1,992	2,244
Short-term notes payable	291	273
Long-term debt	5,040	5,880
Net fixed assets	12,621	12,922
Accounts payable	1,581	1,533
Inventory	3,542	3,640
Dividends	350	385