Answer:
The answer is b. false
Explanation:
Call X as the adjusted gross income before taxation. The corporate income tax is 0.05 * X. Given that the incremental federal tax rate is 34% after the state corporate income tax and because the state corporate income tax is deductible from the federal taxes, the incremental federal tax is 0.34 * (X - 0.05 * X). Therefore: 0.34 * (X - 0.05 * X) = 0.34 * 0.95 * X = 0.323 * X. The combined effective tax rate should be 32.3%.
