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Exam 1: An Introduction to Tax

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Question 41

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The substitution effect:

A) Predicts that taxpayers will work harder to pay for consumer products when tax rates increase
B) Is one of the effects considered in static forecasting
C) Results in the government collecting more aggregate tax revenue than under the income effect
D) Is typically more descriptive for taxpayers with lower disposable income
E) None of these

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

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Question 42

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

A) True
B) False

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Question 43

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One key characteristic of a tax is that it is a required payment to a governmental agency.

The concept of tax sufficiency:

Which of the following taxes represents the largest portion of U.S. Federal Tax revenues?

In a regressive tax rate system, the marginal tax rate will often be greater than the average tax rate.

Curtis invests $250,000 in a city of Athens bond that pays 7% interest. Alternatively, Curtis could have invested the $250,000 in a bond recently issued by Initech, Inc. that pays 9% interest with similar risk as the city of Athens bond. Assume that Curtis's marginal tax rate is 28%. How much implicit tax would Curtis pay on the city of Athens bond?

Geronimo files his tax return as a head of household for year 2016. If his taxable income is $72,000, what is his average tax rate (rounded) ?

Leonardo 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 Susie earns $750,000 in taxable income, how much tax will she pay as a single taxpayer for year 2016?

The ultimate economic burden of a tax is best captured by:

Al believes that SUVs have negative social and environmental effects because of their increased carbon monoxide emissions. He proposes eliminating sales taxes on smaller automobiles in favor of higher sales taxes levied on SUVs. Al performs some calculations and comes to the conclusion that based on the current number of SUVs owned in the U.S. exactly the same amount of total sales tax will be collected under his reformed system. Which of the following concepts explains why Al's idea may not work?

Jed Clampett is expanding his family-run beer distributorship into Georgia or Tennessee. His parents began the business many years ago and now three generations of Clampetts work in the family business. Jed will relocate the entire family (his parents, spouse, children, etc.) to either state after the move. What types of taxes may influence his decision of where to locate his business? What non-tax factors may influence the decision?

Curtis invests $250,000 in a city of Athens bond that pays 7% interest. Alternatively, Curtis could have invested the $250,000 in a bond recently issued by Initech, Inc. that pays 9% interest with similar risk as the city of Athens bond. Assume that Curtis's marginal tax rate is 28%. How much explicit tax would Curtis incur on interest earned on the Initech, Inc. bond?

Tax policy rarely plays an important part in presidential campaigns.

Sin taxes are:

There are several different types of tax rates that taxpayers might use in different contexts. Describe each tax rate and how a taxpayer might use it.

For each of the following, determine if each is a tax and why or why not. a. $2.50 toll paid on the Florida Turnpike b. $300 ticket for reckless driving c. 1% local surcharge on hotel rooms to fund public roadways d. 2% city surcharge on wages earned in the city of Philadelphia

In a proportional (flat) tax rate system, the marginal tax rate will always equal the average tax rate.

Common examples of sin taxes include the taxes imposed on airline tickets and gasoline.

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 2016, what is his current marginal tax rate?