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Exam 1: An Introduction to Tax

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Question 31

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The city of Granby, Colorado recently enacted a 1.5% surcharge on vacation cabin rentals that will help pay for the city's new elementary school. This surcharge is an example of ________.

A) A sin tax to discourage undesirable behavior
B) A government fine
C) An earmarked tax
D) A sin tax to discourage undesirable behavior and an earmarked tax
E) None of these

F) B) and C)
G) A) and E)

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Question 32

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A sales tax is a common example of a progressive tax rate structure.

A) True
B) False

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Question 33

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Junior earns $80,000 taxable income as a regional circuit stock car driver and is taxed at an average rate of 25 percent (i.e., $20,000 of tax). If Congress increases the income tax rate such that Junior's average tax rate increases from 25% to 30%, how much more income tax will he pay assuming that the income effect is larger than the substitution effect? What effect will this tax rate change have on the tax base and tax collected? What will happen to the government's tax revenues if Junior chooses to spend more time pursuing his other passions besides work (e.g., earns only $60,000 in taxable income) in response to the tax rate change? What is the term that describes this type of reaction to a tax rate increase? (Round your answers to two decimal places.)

Marc, a single taxpayer, earns $60,000 in taxable income and $5,000 in interest from an investment in city of Birmingham Bonds. Using the U.S. tax rate schedule for year 2018, what is his effective tax rate (rounded) ? (Use tax rate schedule)

A common example of an employment related tax is the Medicare tax.

In addition to raising revenues, specific U.S. taxes may have other objectives (e.g., economic or social objectives).

A 1% charge imposed by a local government on football tickets sold is not considered a tax if all proceeds are earmarked to fund local schools.

Marc, a single taxpayer, earns $60,000 in taxable income and $5,000 in interest from an investment in city of Birmingham Bonds. Using the U.S. tax rate schedule for year 2018, how much federal tax will he owe? (Use tax rate schedule)

The difficulty in calculating a tax is typically in the determination of:

The income and substitution effects are two opposing effects that one could consider in static forecasting.

Consider the following tax rate structures. Is it horizontally equitable? Why or why not? Is it vertically equitable? Why or why not?  

The state of Georgia recently increased its tax on a carton of cigarettes by $2.00. What type of tax is this?

Congress would like to increase tax revenues by 20 percent. Assume that the average taxpayer in the United States earns $80,000 and pays an average tax rate of 17.5%. If the income effect is larger than the substitution effect, what average tax rate will result in a 20 percent increase in tax revenues? This is an example of what type of forecasting?

The tax base for the federal income tax is taxable income.

Jackson has the choice to invest in city of Mitchell bonds or Sundial, Inc. corporate bonds that pay 10% interest. Jackson is a single taxpayer who earns $55,000 annually. Assume that the city of Mitchell bonds and the Sundial, Inc. bonds have similar risk. Assume the original facts as given except that Jackson is a head of household taxpayer and the city of Mitchell pays interest of 8%. How would you advise Jackson to invest his money?

Which of the following is False?

Taxes influence many types of business decisions but generally do not influence personal decisions.

Taxes influence business decisions such as where a business should locate or how a business should be structured.

A use tax is typically imposed by a state on goods purchased within the state.

Leonardo, who is married but files separately, earns $80,000 of taxable income. He also has $15,000 in city of Tulsa bonds. His wife, Theresa, earns $50,000 of taxable income. If Leonardo earned an additional $30,000 of taxable income this year, what would be the marginal tax rate (rounded) on the extra income for year 2018? (Use tax rate schedule)