Question 1

Changing the basis of taxation from income earned to amount spent will

Accepted Answer

A)   necessarily reduce tax revenues.
B)   lower effective interest rates on savings.
C)   distort incentives to earn income.
D)   eliminate disincentives to save.E) B) and C)
F) C) and D)

Question 2

Suppose the government imposes a tax of 10 percent on the first $40,000 of income and 20 percent on all income above $40,000.What are the tax liability and the marginal tax rate for a person whose income is $30,000?

Accepted Answer

A)   both are 10 percent
B)   10 percent and $2,000,respectively
C)   $3,000 and 10 percent,respectively
D)   $3,000 and 20 percent,respectivelyE) A) and D)
F) B) and C)

Question 3

Individual income taxes generate roughly 25% of the tax revenue for the federal government.

Accepted Answer

A) True 
 B)False

Question 4

The average American pays a higher percent of his income in taxes today than he would have in the late 18th century.

Accepted Answer

A) True 
 B)False

Question 5

Table 12-4
 
-Refer to Table 12-4.Suppose that the government imposes a $2 tax on delights,causing the price to increase from $4.00 to $6.00.Total consumer surplus

Accepted Answer

A)   falls by less than the tax revenue generated.
B)   falls by more than the tax revenue generated.
C)   falls by the same amount as the tax revenue generated.
D)   will not fall since Jennifer will no longer be in the market.E) A) and B)
F) A) and C)

Question 6

The largest budgetary expense for a typical state or local government is

Accepted Answer

A)   National Guard defense.
B)   welfare.
C)   highways.
D)   education.E) B) and D)
F) A) and D)

Question 7

Define the marginal tax rate.

Accepted Answer

The marginal tax rat...

Question 8

Define horizontal equity and briefly describe some features of the U.S.federal income tax system that may interfere with achieving it.

Accepted Answer

Horizontal equity is the idea that taxpa...

Question 9

Table 12-15
 
-Refer to Table 12-15.The tax system is

Accepted Answer

A)   proportional.
B)   regressive.
C)   progressive.
D)   lump sum.E) A) and C)
F) None of the above

Question 10

Suppose a country imposes a lump-sum income tax of $6,000 on each individual in the country.What is the average income tax rate for an individual who earns $60,000 during the year?

Accepted Answer

A)   0%
B)   10%
C)   More than 10%
D)   The average tax rate cannot be determined without knowing the entire tax schedule.E) A) and C)
F) B) and C)

Question 11

The typical state spends the most on

Accepted Answer

A)   education.
B)   Medicare and Social Security.
C)   highways.
D)   defense.E) All of the above
F) None of the above

Question 12

Many economists believe that the U.S.tax system would be made more efficient if the basis of taxation were changed so that people paid taxes,more so than they do now,based on

Accepted Answer

A)   their saving rather than their income.
B)   their spending rather than their income.
C)   their income rather than their wealth.
D)   their wealth rather than their spending.E) A) and B)
F) B) and C)

Question 13

The U.S.tax burden is

Accepted Answer

A)   about the same as most European countries.
B)   higher than most European countries.
C)   lower than most European countries.
D)   higher than all European countries.E) C) and D)
F) A) and C)

Question 14

The benefits principle is used to justify

Accepted Answer

A)   sales taxes.
B)   gasoline taxes.
C)   "sin" taxes on cigarettes and alcoholic beverages.
D)   personal income taxes.E) C) and D)
F) B) and C)

Question 15

You are trying to design a tax system that will simultaneously achieve both of the following goals: 1) a person with no income would pay no taxes,and 2) a high-income person would pay a higher fraction of income in taxes than a low-income person.Which of the following statements is correct?

Accepted Answer

A)   A lump-sum tax would achieve the second goal but not the first.
B)   A regressive tax would achieve the second goal but not the first.
C)   A progressive tax could achieve both goals.
D)   A proportional tax could achieve the second goal but not the first.E) B) and C)
F) A) and C)

Question 16

Table 12-17
The dollar amounts in the last three columns are the taxes owed under the three different tax systems.
 
-Refer to Table 12-17.Which of the three tax systems is regressive?

Accepted Answer

A)   Tax System A
B)   Tax System B
C)   Tax System C
D)   None of the systems are regressive.E) None of the above
F) B) and D)

Question 17

Incentives to work and save are reduced when

Accepted Answer

A)   income taxes are higher.
B)   consumption taxes replace income taxes.
C)   corrective taxes are implemented.
D)   All of the above are correct.E) B) and D)
F) B) and C)

Question 18

Table 12-12
United States Income Tax Rates for a Single Individual,2009 and 2010.
 
-Refer to Table 12-12.Mia is a single person whose taxable income is $100,000 a year.What is her marginal tax rate in 2010?

Accepted Answer

A)   15%
B)   27%
C)   30%
D)   35%E) B) and C)
F) C) and D)

Question 19

Corporate profits distributed as dividends are

Accepted Answer

A)   tax free.
B)   taxed once.
C)   taxed twice.
D)   taxed three times.E) None of the above
F) A) and B)

Question 20

Horizontal equity in taxation refers to the idea that people

Accepted Answer

A)   in unequal conditions should be treated differently.
B)   in equal conditions should pay equal taxes.
C)   should be taxed according to their ability to pay.
D)   should receive government benefits according to how much they have been taxed.E) B) and D)
F) A) and C)

Exam 12: The Design of the Tax System

Many economists believe that the U.S.tax system would be made more efficient if the basis of taxation were changed so that people paid taxes,more so than they do now,based on

Correct AnswerverifiedShow Answer

Suppose a country imposes a lump-sum income tax of $6,000 on each individual in the country.What is the average income tax rate for an individual who earns $60,000 during the year?

Correct AnswerverifiedShow Answer

Incentives to work and save are reduced when

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The typical state spends the most on

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Corporate profits distributed as dividends are

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Horizontal equity in taxation refers to the idea that people

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The average American pays a higher percent of his income in taxes today than he would have in the late 18th century.

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Define horizontal equity and briefly describe some features of the U.S.federal income tax system that may interfere with achieving it.

Correct AnswerverifiedHorizontal equity is the idea that taxpa...View AnswerShow Answer

Table 12-4 -Refer to Table 12-4.Suppose that the government imposes a $2 tax on delights,causing the price to increase from $4.00 to $6.00.Total consumer surplus

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Table 12-12 United States Income Tax Rates for a Single Individual,2009 and 2010. -Refer to Table 12-12.Mia is a single person whose taxable income is $100,000 a year.What is her marginal tax rate in 2010?

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Define the marginal tax rate.

Correct AnswerverifiedThe marginal tax rat...View AnswerShow Answer

The U.S.tax burden is

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You are trying to design a tax system that will simultaneously achieve both of the following goals: 1) a person with no income would pay no taxes,and 2) a high-income person would pay a higher fraction of income in taxes than a low-income person.Which of the following statements is correct?

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Table 12-17 The dollar amounts in the last three columns are the taxes owed under the three different tax systems. -Refer to Table 12-17.Which of the three tax systems is regressive?

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The benefits principle is used to justify

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Table 12-15 -Refer to Table 12-15.The tax system is

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Suppose the government imposes a tax of 10 percent on the first $40,000 of income and 20 percent on all income above $40,000.What are the tax liability and the marginal tax rate for a person whose income is $30,000?

Correct AnswerverifiedShow Answer

Changing the basis of taxation from income earned to amount spent will

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Individual income taxes generate roughly 25% of the tax revenue for the federal government.

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The largest budgetary expense for a typical state or local government is

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Horizontal equity is the idea that taxpa...
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The marginal tax rat...
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