Exam 12: The Design of the Tax System

Suppose that Amy and George have the same income. George has no children. Amy has two children, both of which attend a state-funded school. When Amy's children get sick their health care receives a government subsidy. George has private health insurance. According to the benefits principle:

A poorly designed tax policy tends to be accompanied by which of the following costs?

Lump-sum taxes are rarely used in the real world because:

If your income is $60 000 and your income tax liability is $15 000, your:

'A $1000 tax paid by a poor person may be a larger sacrifice than a $10 000 tax paid by a wealthy person'. This is an argument based on:

The marginal tax rate is the extra taxes paid on an additional dollar of income.

Mark, Danny, Kristin and Ruthie all love to ski at the local ski resort on weekends. Mark is the most avid skier and places a value of $85 on his weekend skiing. Danny, Kristin and Ruthie place values of $75, $65 and $40, respectively, on their weekend skiing experience. Assume that the price of a weekend ski pass is $38. Further assume that this price reflects the actual unit cost of providing a weekend of skiing. -According to the information provided, the amount of surplus value that accrues to Mark, Danny, Kristin and Ruthie from their weekend skiing is:

Many economists have suggested that workers and consumers bear much of the burden of company income tax. In the light of this suggestion, explain why the company income tax is so popular among voters. How does the 'flypaper theory' of tax incidence relate to the company income tax?

Taxes on the wealthy that are used exclusively for anti-poverty programs may be justified on the benefits principle if:

Which of the following is a cost of taxes to the taxpayer?

Why might a tax on luxury yachts that are purchased only by the wealthy fail to satisfy the condition of vertical equity?

Describe the ability-to-pay principle of taxation. Use an example to demonstrate the difference between horizontal and vertical equity.

The marginal tax rate is the appropriate measure of the financial sacrifice made by taxpayers.

There is little disagreement among people about tax policy because most people attach the same weights to the goals of equity and efficiency.

Taxes create deadweight losses because they distort incentives.

There is little disagreement about what constitutes tax equity.

If tax laws become simplified then:

Policymakers consider two main objectives when designing a taxation system:

In order to construct a more complete picture of the economic burden of government across income classes, economists usually:

When taxes are justified on the basis that taxpayers receive specific government services, the tax: