Mr. johnson earns $100,000 per year. each year he spends $70,000 and saves $30,000. he pays a 5 percent sales tax on all of his spending. assuming this is the only tax he pays, his average tax rate out of his income is

To calculate Mr. Johnson's average tax rate based on his income, we need to consider the amount of tax he pays in relation to his total income. First, let's calculate the total amount of tax he pays.

1. Calculate the sales tax Mr. Johnson pays: Since he spends $70,000 and pays a 5 percent sales tax on this spending, the sales tax he pays is 5% of $70,000. Sales Tax Paid = $70,000 * 5/100 = $3,500.

2. Calculate his total income: We know Mr. Johnson earns $100,000 per year.

3. Calculate the average tax rate: The average tax rate is the total tax Mr. Johnson pays divided by his total income, expressed as a percentage. Average Tax Rate = (Sales Tax Paid / Total Income) * 100 Average Tax Rate = ($3,500 / $100,000) * 100 = 3.5%

Therefore, Mr. Johnson's average tax rate out of his income is 3.5%.

Extra: Understanding taxes is an important part of financial literacy. In the example above, we talk about the "average tax rate." This is a measure of the part of an individual's total income that goes to pay taxes. Keep in mind that there are different types of taxes someone might pay: income taxes, property taxes, sales taxes, etc. The sales tax is a type of consumption tax imposed on the sale of goods and services. The buyer pays the tax at the point of purchase, and the seller then remits it to the government. The average tax rate is different from the marginal tax rate, which refers to the rate of tax you pay on an additional dollar of income, and it's crucial to take these differences into account when planning personal finances or studying economics.