Norman and Vanessa are married and have 2 dependent children. This is a summary of their 2009 tax…

Norman and Vanessa are married and have 2 dependent
children. This is a summary of their 2009 tax return:

Adjusted gross income                                                  $
89,400

Deductions from adjusted gross income:

       Standard deduction             &
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Norman and Vanessa are married and have 2 dependent
children. This is a summary of their 2009 tax return:

Adjusted gross income                                                  $
89,400

Deductions from adjusted gross income:

       Standard deduction                                                  (11,400)

       Exemptions ($3,650  4)
                                        (14,600)

Taxable income                                                              $
63,400

Tax liability                                                                            $
8,675

a. Assuming that Norman and Vanessa’s 2010 adjusted gross
income will increase at the 0.2% rate of inflation and that the standard
deduction and exemption amounts do not change, calculate their 2010 taxable
income. Calculate the tax liability on this income using the 2009 tax rate
schedules (Appendix B).

b. Calculate Norman and Vanessa’s projected 2010 taxable
income and tax liability, assuming that their adjusted gross income will
increase by 0.2% and that all other inflation adjustments are made. Compare
these calculations with those in part a, and explain how the inflation
adjustments preserve Norman and Vanessa’s aftertax income.

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