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Exam 12: The Design of the Tax System

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Question 31

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One of the most difficult issues associated with trying to structure a tax policy to satisfy horizontal equity is determining

A) whether or not a taxpayer falls within the highest income quintile.
B) the level of transfer payments made to low-income groups.
C) the source of income for taxpayers.
D) what differences are relevant to a family's ability to pay.

E) None of the above
F) A) and D)

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Question 32

Multiple Choice

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As tax laws become more complex,

A) the administrative burden of taxes will increase.
B) compliance costs are likely to decrease.
C) the government will collect more in tax revenue.
D) the amount of tax revenue lost to tax evasion will decrease.

E) A) and D)
F) B) and D)

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Question 33

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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 $50,000?

'The U.S. tax code gives preferential treatment to investors in municipal bonds. This is an example of

Vertical and horizontal equity are widely accepted and applying them to evaluate a tax system is always straightforward.

Table 12-11 -Refer to Table 12-11. If Al has taxable income of $165,000, his marginal tax rate is

The theory that the wealthy should contribute more to police protection than the poor because they have more to protect is based on

Scenario 12-2 Suppose that Bob places a value of $10 on a movie ticket and that Lisa places a value of $7 on a movie ticket. In addition, suppose the price of a movie ticket is $5. -Refer to Scenario 12-2. What is total consumer surplus for Bob and Lisa?

Table 12-22 -Refer to Table 12-22. A progressive tax is illustrated by tax

A tax on all forms of income will

If transfer payments are included when evaluating tax burdens, then the average tax rate of the poorest quintile of taxpayers would be approximately

​Rob's income rises from $50,000 to $60,000 and his income tax increases from $6,000 to $7,500.His marginal tax rate is 12.5%.

​Suppose Ron is willing to pay $200 to see a professional basketball game and Felix is willing to pay $150.Assume the normal price of a ticket is $125.The local government decides to impose a $35/ticket surcharge to raise revenue, causing the ticket price to rise to $160.The resulting deadweight loss is:

Scenario 12-3 Suppose Roger and Regina receive great satisfaction from their consumption of cheesecake. Regina would be willing to purchase only one slice and would pay up to $8 for it. Roger would be willing to pay $11 for his first slice, $9 for his second slice, and $5 for his third slice. The current market price is $5 per slice. -Refer to Scenario 12-3. Assume that the government places a $4 tax on each slice of cheesecake and that the new equilibrium price is $9. What is the deadweight loss of the tax?

Athos, Porthos,and Aramis each like to take fencing lessons. The price of a fencing lesson is $11. Athos values a lesson at $16, Porthos at $14, and Aramis at $12. Suppose that if the government taxes fencing lessons at $2 each, the price will rise to $13. A consequence of the tax is that consumer surplus shrinks by

In 2011, approximately how much of federal government spending went to income security?

What are the two types of costs that a well-designed tax policy tries to avoid or minimize?

If we want to gauge the sacrifice made by a taxpayer, we should use the

The largest category of federal spending is national defense.

Table 12-22 -Refer to Table 12-22. A regressive tax is illustrated by tax