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    Computing Tax Savings

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    Suppose that Congress recently amended the tax law to provide for a maximum 12% rate on interest income from U.S. savings bonds. Compute the tax savings from this preferential rate for:

    a. Ms. E., who has a 15% marginal rate on ordinary income and earned $290 interest on her investment in U.S. savings bonds.

    b. Mr. K., who has a 35% marginal rate on ordinary income and earned $290 interest on his investment in U.S. savings bonds.

    Please show all calculations.

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    Solution Preview

    The interest income on U.S. savings bonds is generally taxed as ordinary income. Thus, if Congress amended the law to tax the income at a maximum rate of 12 percent, the taxpayer would save the ...

    Solution Summary

    Suppose that Congress recently amended the tax law to provide for a maximum 12% rate on interest income from U.S. savings bonds. Compute the tax savings from this preferential rate for:

    a. Ms. E., who has a 15% marginal rate on ordinary income and earned $290 interest on her investment in U.S. savings bonds.

    b. Mr. K., who has a 35% marginal rate on ordinary income and earned $290 interest on his investment in U.S. savings bonds.

    Please show all calculations.

    $2.19

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