Exam 1: An Introduction to Tax

Ricky and Lucy are debating several types of taxes. Their debate has focused on the different types of tax rate structures and whether they are "fair." Please define each tax rate structure, provide examples of each structure, and discuss how each structure may be viewed with respect to vertical equity.

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

Given the following tax structure, what amount of tax would need to be assessed on Carrie to make the tax horizontally equitable? What is the minimum tax that Simon should pay to make the tax structure vertically equitable based on Fantasia's tax rate? This would result in what type of tax rate structure? Taxpayer Salary Total Tax Fantasia 20,000 1,500 Simon 30,000 2,000 Carrie 20,000 ???

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

Geronimo files his tax return as a head of household for year 2014. If his taxable income is $72,000, what is his average tax rate (rounded)?

Namratha has the choice between investing in a city of Watkinsville bond at 4.5% or a Moe's, Inc. bond at 7%. Assuming that both bonds have the same non-tax characteristics and that Namratha has a 25% marginal tax rate, in which bond should she invest? What interest rate offered by Moe's, Inc. would make Namratha indifferent between investing in the two bonds?

Relative to explicit taxes, implicit taxes are much easier to estimate.

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.

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

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

In terms of effective tax rates, the sales tax can be viewed as a regressive tax.

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

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

What interest rate would the city of Mitchell have to pay in order to make Jackson indifferent between investing in the city of Mitchell and the Sundial, Inc. bonds for year 2014?

If Leonardo instead had $30,000 of additional tax deductions for year 2014, his marginal tax rate (rounded) on the deductions would be:

The estate tax is assessed based on the fair market values of transfers made during a taxpayer's life.

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

Horizontal equity is defined in terms of taxpayers in similar situations whereas vertical equity is defined in terms of taxpayers in different situations.

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

Taxes influence which of the following decisions?