Question 1

Which of the following statements concerning the federal Social Security tax is true?

Accepted Answer

A)  The tax burden increases annually because the rate increases annually. 
B)  The tax burden increases annually because the base increases annually. 
C)  Both the rate and the base increase annually. 
D)  The Social Security tax burden has not increased since 1990. 
A)  The tax burden increases annually because the rate increases annually. 
B)  The tax burden increases annually because the base increases annually. 
C)  Both the rate and the base increase annually. 
D)  The Social Security tax burden has not increased since 1990.

Question 2

Tax systems with regressive rate structures result in a proportionally heavier tax burden on persons with smaller tax bases.

Accepted Answer

A) True 
 B)False

Question 3

Mr. Ohno owns and operates a part-time service business that generates $80,000 annual taxable income. His federal tax rate on this income is 17%. Because of recent legislation, this rate will increase to 25% next year.
A. Based on a static forecast, how much additional revenue will the federal government collect from Mr. Ohno next year?
A. The federal government will collect $6,400 additional revenue ($80,000 * 8% rate increase).
B. How much additional revenue will the federal government collect if Mr. Ohno decides to work fewer hours and consequently earns only $50,000 next year?
B. The federal government will collect $1,100 less revenue ([$50,000 * 25%] - [$80,000 * 17%]).

Accepted Answer

A. The federal government will

Question 4

Which of the following statements concerning tax preferences is true?

Accepted Answer

A)  The annual revenue loss from federal tax preferences is quantified in the Tax Expenditures Budget. 
B)  Tax preferences increase the fairness of the tax law. 
C)  Tax preferences simplify the tax law. 
D)  Tax preferences make the tax law more neutral across taxpayers. 
A)  The annual revenue loss from federal tax preferences is quantified in the Tax Expenditures Budget. 
B)  Tax preferences increase the fairness of the tax law. 
C)  Tax preferences simplify the tax law. 
D)  Tax preferences make the tax law more neutral across taxpayers.

Question 5

Which of the following statements about a progressive tax rate structure is false?

Accepted Answer

A)  Progressive rates increase as the tax base increases. 
B)  Progressive rates reflect the theory of the declining marginal utility of income. 
C)  The federal income tax has always used a progressive rate structure. 
D)  Progressive rates result in greater vertical equity than a proportionate rate. 
A)  Progressive rates increase as the tax base increases. 
B)  Progressive rates reflect the theory of the declining marginal utility of income. 
C)  The federal income tax has always used a progressive rate structure. 
D)  Progressive rates result in greater vertical equity than a proportionate rate.

Question 6

Jurisdiction P recently increased its income tax rate. A taxpayer who reacts to the increase by working harder to earn more income is demonstrating the income effect of the rate increase.

Accepted Answer

A) True 
 B)False

Question 7

Jurisdiction M imposes an individual income tax based on the following schedule. $$\begin{array} { | c | c | } 
\hline \text { Rate } & \text { Income bracket } \
\hline 5 \% & \$ - 0 - \text { to } \$ 50,000 \
\hline + 8 \% & \$ 50,001 \text { to } \$ 200,000 \
\hline + 12 \% & \$ 200,001 \text { ard above } \
\hline
\end{array}$$ Which of the following statements is true?

Accepted Answer

A)  If Mrs. Hall's taxable income is $227,000, her average tax rate is 12%. 
B)  If Mr. Poe's taxable income is $41,200, his marginal tax rate is 8%. 
C)  If Ms. Kaye's taxable income is $63,800, her marginal tax rate is 8%. 
D)  None of the above is true. 
A)  If Mrs. Hall's taxable income is $227,000, her average tax rate is 12%. 
B)  If Mr. Poe's taxable income is $41,200, his marginal tax rate is 8%. 
C)  If Ms. Kaye's taxable income is $63,800, her marginal tax rate is 8%. 
D)  None of the above is true.

Question 8

Which of the following statements regarding a convenient tax is false?

Accepted Answer

A)  From the government's viewpoint, a good tax should be convenient to administer. 
B)  From the taxpayer's viewpoint, a good tax should be convenient to pay. 
C)  A convenient tax should have a method of collection that offers maximum opportunity for noncompliance. 
D)  A convenient tax should permit taxpayers to compute their tax with reasonable certainty without incurring undue costs. 
A)  From the government's viewpoint, a good tax should be convenient to administer. 
B)  From the taxpayer's viewpoint, a good tax should be convenient to pay. 
C)  A convenient tax should have a method of collection that offers maximum opportunity for noncompliance. 
D)  A convenient tax should permit taxpayers to compute their tax with reasonable certainty without incurring undue costs.

Question 9

Mr. and Mrs. Boln earn $63,000 annual income and pay 20% in state and federal income tax. If tax rates increase so that the couple's annual rate increases to 25%, how much additional income must they earn to maintain their after-tax standard of living?

Accepted Answer

The Bolns' after-tax income before the r

Question 10

Jurisdiction M imposes an individual income tax based on the following schedule. $$\begin{array} { | c | c | } 
\hline \text { Rate } & \text { Income bracket } \
\hline 5 \% & \$ - 0 - \text { to } \$ 50,000 \
\hline + 8 \% & \$ 50,001 \text { to } \$ 200,000 \
\hline + 12 \% & \$ 200,001 \text { ard above } \
\hline
\end{array}$$ Which of the following statements is true?

Accepted Answer

A)  The schedule provides no information as to whether Jurisdiction M's tax is horizontally equitable. 
B)  Jurisdiction M's tax is vertically equitable. 
C)  Jurisdiction M's tax is vertically equitable only for individuals with $50,000 or less taxable income. 
D)  Both A. and B. are true. 
A)  The schedule provides no information as to whether Jurisdiction M's tax is horizontally equitable. 
B)  Jurisdiction M's tax is vertically equitable. 
C)  Jurisdiction M's tax is vertically equitable only for individuals with $50,000 or less taxable income. 
D)  Both A. and B. are true.

Question 11

Which of the following tax policies would increase the redistribution of wealth across society?

Accepted Answer

A)  Repealing the federal estate and gift taxes 
B)  Increasing the highest marginal income tax rate by 10% 
C)  Replacing the progressive income tax rate structure with a flat rate 
D)  Replacing the income tax with a national sales tax 
A)  Repealing the federal estate and gift taxes 
B)  Increasing the highest marginal income tax rate by 10% 
C)  Replacing the progressive income tax rate structure with a flat rate 
D)  Replacing the income tax with a national sales tax

Question 12

The federal government is not required to pay interest on the national debt.

Accepted Answer

A) True 
 B)False

Question 13

A dynamic forecast of the revenue effect of a tax rate change assumes that the tax base does not change.

Accepted Answer

A) True 
 B)False

Question 14

Which of the following statements about the substitution effect of an income tax rate increase is false?

Accepted Answer

A)  The substitution effect is theoretically stronger for high-income taxpayers than for low-income taxpayers. 
B)  The substitution effect is theoretically stronger for a family's secondary wage earner than for the family's primary wage earner. 
C)  The substitution effect is theoretically stronger for self-employed individuals who control their own time than for employees whose work schedules are controlled by their employers. 
D)  None of the above is false. 
A)  The substitution effect is theoretically stronger for high-income taxpayers than for low-income taxpayers. 
B)  The substitution effect is theoretically stronger for a family's secondary wage earner than for the family's primary wage earner. 
C)  The substitution effect is theoretically stronger for self-employed individuals who control their own time than for employees whose work schedules are controlled by their employers. 
D)  None of the above is false.

Question 15

Many taxpayers believe the income tax system is unfair because it is so complicated.

Accepted Answer

A) True 
 B)False

Question 16

A provision in the tax law designed to encourage a specific economic behavior is a tax preference.

Accepted Answer

A) True 
 B)False

Question 17

Supply-side economic theory

Accepted Answer

A)  Predicts that a decrease in the highest income tax rates will cause an increase in government revenues. 
B)  Is inconsistent with the substitution effect. 
C)  Was a clear failure following the Reagan administration tax cuts of the 1980s. 
D)  Predicts that taxpayers will save their tax windfall from a rate cut rather than spend or investment the windfall. 
A)  Predicts that a decrease in the highest income tax rates will cause an increase in government revenues. 
B)  Is inconsistent with the substitution effect. 
C)  Was a clear failure following the Reagan administration tax cuts of the 1980s. 
D)  Predicts that taxpayers will save their tax windfall from a rate cut rather than spend or investment the windfall.

Question 18

A good tax should result in either horizontal or vertical equity across taxpayers.

Accepted Answer

A) True 
 B)False

Question 19

Jurisdiction M imposes an individual income tax based on the following schedule. $$\begin{array} { | c | c | } 
\hline \text { Rate } & \text { Income bracket } \
\hline 5 \% & \$ - 0 - \text { to } \$ 50,000 \
\hline + 8 \% & \$ 50,001 \text { to } \$ 200,000 \
\hline + 12 \% & \$ 200,001 \text { ard above } \
\hline
\end{array}$$ Ms. Owen has $314,000 taxable income. Compute the tax on this income.

Accepted Answer

A)  $29,680 
B)  $28,180 
C)  $37,680 
D)  None of the above 
A)  $29,680 
B)  $28,180 
C)  $37,680 
D)  None of the above

Question 20

The City of Willford levies a flat 7% tax on individual income in excess of $55,000. Individuals who earn $55,000 or less pay no income tax.
A. Ms. Vello earned $127,200 income this year. Compute her city income tax and determine her average tax rate.
B. Mr. Sui earned $68,900 income this year. Compute his city income tax and determine his average tax rate.
C. Does Willford have a proportionate, progressive, or regressive tax rate structure?

Accepted Answer

A. Ms. Vello's tax is $5,054 ($72,200 *

Which of the following statements concerning the federal Social Security tax is true?

Tax systems with regressive rate structures result in a proportionally heavier tax burden on persons with smaller tax bases.

Which of the following statements concerning tax preferences is true?

Which of the following statements about a progressive tax rate structure is false?

Jurisdiction P recently increased its income tax rate. A taxpayer who reacts to the increase by working harder to earn more income is demonstrating the income effect of the rate increase.

Jurisdiction M imposes an individual income tax based on the following schedule. Rate Income bracket 5\% \ -0- to \ 50,000 +8\% \ 50,001 to \ 200,000 +12\% \ 200,001 ard above Which of the following statements is true?

Which of the following statements regarding a convenient tax is false?

Mr. and Mrs. Boln earn $63,000 annual income and pay 20% in state and federal income tax. If tax rates increase so that the couple's annual rate increases to 25%, how much additional income must they earn to maintain their after-tax standard of living?

Jurisdiction M imposes an individual income tax based on the following schedule. Rate Income bracket 5\% \ -0- to \ 50,000 +8\% \ 50,001 to \ 200,000 +12\% \ 200,001 ard above Which of the following statements is true?

Which of the following tax policies would increase the redistribution of wealth across society?

The federal government is not required to pay interest on the national debt.

A dynamic forecast of the revenue effect of a tax rate change assumes that the tax base does not change.

Which of the following statements about the substitution effect of an income tax rate increase is false?

Many taxpayers believe the income tax system is unfair because it is so complicated.

A provision in the tax law designed to encourage a specific economic behavior is a tax preference.

Supply-side economic theory

A good tax should result in either horizontal or vertical equity across taxpayers.

Jurisdiction M imposes an individual income tax based on the following schedule. Rate Income bracket 5\% \ -0- to \ 50,000 +8\% \ 50,001 to \ 200,000 +12\% \ 200,001 ard above Ms. Owen has $314,000 taxable income. Compute the tax on this income.

Taxes and Taxing Jurisdictions

Taxes As Transaction Costs

Maxims of Income Tax Planning

Tax Research

Taxable Income From Business Operations

Property Acquisitions and Cost Recovery Deductions

Property Dispositions

Nontaxable Exchanges

Sole Proprietorships, Partnerships, Llcs, and S Corporations

The Corporate Taxpayer

The Choice of Business Entity

Jurisdictional Issues in Business Taxation

The Individual Tax Formula

Compensation and Retirement Planning

Investment and Personal Financial Planning

Tax Consequences of Personal Activities

The Tax Compliance Process

Filters

Exam 2: Policy Standards for a Good Tax

Which of the following statements concerning the federal Social Security tax is true?

Tax systems with regressive rate structures result in a proportionally heavier tax burden on persons with smaller tax bases.

Which of the following statements concerning tax preferences is true?

Which of the following statements about a progressive tax rate structure is false?

Jurisdiction P recently increased its income tax rate. A taxpayer who reacts to the increase by working harder to earn more income is demonstrating the income effect of the rate increase.

Jurisdiction M imposes an individual income tax based on the following schedule. Rate Income bracket 5\% \ -0- to \ 50,000 +8\% \ 50,001 to \ 200,000 +12\% \ 200,001 ard above Which of the following statements is true?

Which of the following statements regarding a convenient tax is false?

Mr. and Mrs. Boln earn $63,000 annual income and pay 20% in state and federal income tax. If tax rates increase so that the couple's annual rate increases to 25%, how much additional income must they earn to maintain their after-tax standard of living?

Jurisdiction M imposes an individual income tax based on the following schedule. Rate Income bracket 5\% \ -0- to \ 50,000 +8\% \ 50,001 to \ 200,000 +12\% \ 200,001 ard above Which of the following statements is true?

Which of the following tax policies would increase the redistribution of wealth across society?

The federal government is not required to pay interest on the national debt.

A dynamic forecast of the revenue effect of a tax rate change assumes that the tax base does not change.

Which of the following statements about the substitution effect of an income tax rate increase is false?

Many taxpayers believe the income tax system is unfair because it is so complicated.

A provision in the tax law designed to encourage a specific economic behavior is a tax preference.

Supply-side economic theory

A good tax should result in either horizontal or vertical equity across taxpayers.

Jurisdiction M imposes an individual income tax based on the following schedule. Rate Income bracket 5\% \ -0- to \ 50,000 +8\% \ 50,001 to \ 200,000 +12\% \ 200,001 ard above Ms. Owen has $314,000 taxable income. Compute the tax on this income.

Taxes and Taxing Jurisdictions

Taxes As Transaction Costs

Maxims of Income Tax Planning

Tax Research

Taxable Income From Business Operations

Property Acquisitions and Cost Recovery Deductions

Property Dispositions

Nontaxable Exchanges

Sole Proprietorships, Partnerships, Llcs, and S Corporations

The Corporate Taxpayer

The Choice of Business Entity

Jurisdictional Issues in Business Taxation

The Individual Tax Formula

Compensation and Retirement Planning

Investment and Personal Financial Planning

Tax Consequences of Personal Activities

The Tax Compliance Process

Filters