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Exam 12: The Design of the Tax System

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Question 81

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Table 12-6 The table below provides information on the four households that make up a small economy and how much they would pay in taxes under three types of taxes. ​ ​ -Refer to Table 12-6. In this economy Tax B exhibits

A) horizontal and vertical equity.
B) horizontal equity but not vertical equity.
C) vertical equity but not horizontal equity.
D) neither horizontal nor vertical equity.

E) B) and C)
F) All of the above

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Question 82

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Scenario 12-3 A taxpayer faces the following tax rates on her income: ​ 20 percent of the first $\$ 40,000$ of her income; 30 percent of all her income above $\$ 40,000$ . -Refer to Scenario 12-3. The taxpayer faces a marginal tax rate of

A) 30 percent when her income rises from $20,000 to $20,001.
B) 20 percent when her income rises from $20,000 to $20,001.
C) 20 percent when her income rises from $60,000 to $60,001.
D) 0 percent when her income rises from $20,000 to $20,001.

E) A) and D)
F) A) and C)

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Question 83

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Table 12-1 ​ ​ $\begin{array} { | c | c | } \hline \text { Person } & \begin{array} { c } \text { Value of a White Water Rafting } \\\text { Trip } \\\text { (Dollars) }\end{array} \\\hline \text { Ken } & 150 \\\hline \text { Alex } & 120 \\\hline \text { Brenda } & 90 \\\hline \text { Rob } & 60 \\\hline\end{array}$ -Refer to Table 12-1. Assume that the price of a white water rafting trip pass is $55 and that the price reflects the actual unit cost of the trip. Suppose the government imposes a tax of $12 on white water rafting, which raises the price to $67. The deadweight loss associated with the tax is

What is the marginal tax rate of a lump-sum tax of $5,000?

If Christopher earns $80,000 in taxable income and pays $20,000 in taxes, his average tax rate is 20 percent.

Suppose that the government taxes income in the following fashion: 20 percent of the first $50,000, 40 percent of the next $50,000, and 60 percent of all income over $100,000. Marshall earns $200,000, and Lily earns $600,000. Which of the following statements is correct?

Which of the following statements is correct?

If the government imposes a tax of $3,000 on everyone, the tax would be

If all taxpayers pay the same percentage of income in taxes, the tax system is progressive.

What is the most efficient tax and why?

According to the benefits principle, it is fair for people to pay taxes based on the benefits they receive from the government.

Suppose that Christine values a baseball hat at $20, and Mark values one at $18. The pretax price of a baseball hat is $14. The government imposes a $5 tax on baseball hats, which raises the price to $19. What is the deadweight loss from the tax?

Of all the taxes collected in the U.S. economy, what percentage is collected by the federal government?

Define the deadweight loss of a tax.

A budget deficit occurs when government receipts exceed government spending.

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

If we want to gauge how much the income tax system distorts incentives, we should use the

An advantage of a consumption tax is that it does not distort the incentive to save.

In which of the following tax systems does total tax liability increase as income increases?

If the rich pay more in taxes than the poor, the tax system must be progressive.