Question 1

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

Accepted Answer

A)  negative 30 percent.
B)  negative 10 percent.
C)  positive 1 percent.
D)  positive 8 percent.E) None of the above
F) A) and C)

Question 2

Special tax treatment given to specific types of behavior are called

Accepted Answer

A)  tax avoidance.
B)  tax evasion.
C)  tax loopholes.
D)  tax burden.E) A) and B)
F) B) and C)

Question 3

​A city finances a performing arts center by adding a $2.75 tax to each ticket sold.This is an example of taxation via the benefits principle.

Accepted Answer

A) True 
 B)False

Question 4

The administrative burden of complying with tax laws is a cost to the government but not to taxpayers.

Accepted Answer

A) True 
 B)False

Question 5

Two families who live in Plains, GA have identical incomes. The Smiths deduct $5,000 from their taxable income for mortgage interest paid during the year. The Jones family lives in an apartment and is not eligible for a mortgage-interest deduction. This situation exemplifies

Accepted Answer

A)  an application of the benefits principle of taxation.
B)  a violation of horizontal equity.
C)  a violation of vertical equity.
D)  an application of egalitarian tax rules.E) All of the above
F) B) and D)

Question 6

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 their

Accepted Answer

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

Question 7

If Mary earns $80,000 in taxable income and pays $40,000 in taxes, her marginal tax rate must be 50 percent.

Accepted Answer

A) True 
 B)False

Question 8

Table 12-20
The following table presents the total tax liability for an unmarried taxpayer under four different tax schedules for the income levels shown. 
-Refer to Table 12-20. Which tax schedules are proportional?

Accepted Answer

A)  Tax Schedule B only
B)  Tax Schedule B and Tax Schedule C
C)  Tax Schedule D only
D)  Tax Schedule A and Tax Schedule BE) A) and D)
F) B) and C)

Question 9

The typical state spends the most on

Accepted Answer

A)  education.
B)  Medicare and Social Security.
C)  highways.
D)  defense.E) B) and D)
F) A) and D)

Question 10

Table 12-6
The table below shows the marginal tax rates for an unmarried taxpayer for various levels of taxable income. 
-Refer to Table 12-6. For this tax schedule, what is the average tax rate for an individual with $280,000 in taxable income?

Accepted Answer

A)  39.9%
B)  40.2%
C)  42.7%
D)  44.8%E) C) and D)
F) None of the above

Question 11

If a tax generates a reduction in surplus that is exactly offset by the tax revenue collected by the government, the tax does not have a deadweight loss.

Accepted Answer

A) True 
 B)False

Question 12

Vertical equity states that taxpayers with a greater ability to pay taxes should

Accepted Answer

A)  contribute a decreasing proportion of each increment in income to taxes.
B)  contribute a larger amount than those with a lesser ability to pay.
C)  be less subject to administrative burdens of a tax.
D)  be less subject to tax distortions that lead to deadweight losses.E) B) and D)
F) B) and C)

Question 13

Income taxes and property taxes generate the highest tax revenue for state and local governments.

Accepted Answer

A) True 
 B)False

Question 14

The share of federal government spending on healthcare has risen substantially over time. This is most likely a result of

Accepted Answer

A)  medical advances that provide new, better, but often more expensive medical treatments.
B)  a rising population of the elderly in the economy.
C)  health insurance reform that will include government subsidies for health insurance for many low-to-moderate income families.
D)  All of the above are important factors.E) All of the above
F) B) and D)

Question 15

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

Accepted Answer

A)  A.
B)  B.
C)  C.
D)  D.E) A) and C)
F) A) and D)

Question 16

Pat calculates that for every extra dollar she earns, she owes the government 40 cents. Her total income now is $44,000, on which she pays taxes of $11,000. Determine her average tax rate and her marginal tax rate.

Accepted Answer

A)  Her average tax rate is 40 percent and her marginal tax rate is 25 percent.
B)  Her average tax rate is 40 percent and her marginal tax rate is 40 percent.
C)  Her average tax rate is 25 percent and her marginal tax rate is 25 percent.
D)  Her average tax rate is 25 percent and her marginal tax rate is 40 percent.E) A) and B)
F) A) and C)

Question 17

List the three most important expenditure programs of the federal government. How do they differ from the three most important expenditure programs of state and local governments? Explain why it makes more sense for the federal government to purchase "national defense" rather than state governments.

Accepted Answer

The three most important expenditure pro...

Question 18

According to the ability-to-pay principle, it is fair for people to pay taxes based on the amount of government services that they receive.

Accepted Answer

A) True 
 B)False

Question 19

When the marginal tax rate exceeds the average tax rate, the tax is

Accepted Answer

A)  proportional.
B)  regressive.
C)  non-egalitarian.
D)  progressive.E) A) and B)
F) None of the above

Question 20

The deadweight loss of an income tax is determined by the

Accepted Answer

A)  amount of total tax revenue to the government.
B)  marginal tax rate.
C)  average tax rate.
D)  ability-to-pay principle.E) A) and D)
F) B) and C)

Exam 12: The Design of the Tax System

Pat calculates that for every extra dollar she earns, she owes the government 40 cents. Her total income now is $44,000, on which she pays taxes of $11,000. Determine her average tax rate and her marginal tax rate.

Correct AnswerverifiedShow Answer

If a tax generates a reduction in surplus that is exactly offset by the tax revenue collected by the government, the tax does not have a deadweight loss.

Correct AnswerverifiedShow Answer

The share of federal government spending on healthcare has risen substantially over time. This is most likely a result of

Correct AnswerverifiedShow Answer

The typical state spends the most on

Correct AnswerverifiedShow Answer

Correct AnswerverifiedThe three most important expenditure pro...View AnswerShow Answer

Two families who live in Plains, GA have identical incomes. The Smiths deduct $5,000 from their taxable income for mortgage interest paid during the year. The Jones family lives in an apartment and is not eligible for a mortgage-interest deduction. This situation exemplifies

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Table 12-6 The table below shows the marginal tax rates for an unmarried taxpayer for various levels of taxable income. -Refer to Table 12-6. For this tax schedule, what is the average tax rate for an individual with $280,000 in taxable income?

Correct AnswerverifiedShow Answer

Vertical equity states that taxpayers with a greater ability to pay taxes should

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

If Mary earns $80,000 in taxable income and pays $40,000 in taxes, her marginal tax rate must be 50 percent.

Correct AnswerverifiedShow Answer

The deadweight loss of an income tax is determined by the

Correct AnswerverifiedShow Answer

Special tax treatment given to specific types of behavior are called

Correct AnswerverifiedShow Answer

The administrative burden of complying with tax laws is a cost to the government but not to taxpayers.

Correct AnswerverifiedShow Answer

​A city finances a performing arts center by adding a $2.75 tax to each ticket sold.This is an example of taxation via the benefits principle.

Correct AnswerverifiedShow Answer

When the marginal tax rate exceeds the average tax rate, the tax is

Correct AnswerverifiedShow Answer

Income taxes and property taxes generate the highest tax revenue for state and local governments.

Correct AnswerverifiedShow Answer

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 their

Correct AnswerverifiedShow Answer

According to the ability-to-pay principle, it is fair for people to pay taxes based on the amount of government services that they receive.

Correct AnswerverifiedShow Answer

Table 12-20 The following table presents the total tax liability for an unmarried taxpayer under four different tax schedules for the income levels shown. -Refer to Table 12-20. Which tax schedules are proportional?

Correct AnswerverifiedShow Answer

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The three most important expenditure pro...
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A city finances a performing arts center by adding a $2.75 tax to each ticket sold.This is an example of taxation via the benefits principle.

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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