Exam 23: Taxes on Risk Taking and Wealth

Suppose that the government introduces a 50% tax on returns to investment and allows a deduction against taxable income for any losses (assume that the tax rate on taxable income is also 50%).Which statement is TRUE?

Which statement regarding transfer taxation is NOT true?

Suppose Jack owns a warehouse in a rapidly expanding part of a town.Because of the location of the warehouse,it has increased in value from $300,000 (the price Jack paid)to $400,000 (the price Jack would get if he were to sell it).The doctor has recently told Jack that he has one year to live-and the doctor is always right about such things.The capital gains tax rate is 25%.Jack's wealth will be distributed among his children when he dies.The warehouse is not being used.Jack must decide whether to sell the warehouse now and pass the cash on to his children.Assume that there is no estate tax but that the capital gains tax code is the same as that in place in the United States. (a)What is the socially efficient thing for Jack to do? Explain your answer.Be sure to describe the tax implications of your answer as well. (b)What would you advise Jack to do? Explain your answer.Be sure to describe the tax implications of your answer as well.

If a town is in a perfect Tiebout equilibrium (all residents value public goods at their tax cost),then:

Which statement about transfer taxes in the United States is TRUE?

Assume that investment earnings are taxed,losses can be deducted,and the tax structure is progressive.Which statement is TRUE?

Who supports the estate tax,saying that it is "…in keeping with the idea of equality of opportunity in this country"?

Discuss the views of supporters and opponents of estate taxes.

Suppose that there is a 50% chance that an investment of $1,000 rises in value to $1,200,and a 50% chance that the investment falls in value to $900.What is the expected return on the investment?

What are the three ways in which capital gains are subsidized over interest-bearing savings accounts in the U.S.tax code?

Suppose you put $10 into a savings account.A year later the account has $12 in it,all of which you withdraw.The tax rate on accrual is 50% and the tax rate on realization is 25%.How much tax on accrual do you owe? Assume that both taxation on accrual and taxation on realization apply as they do under current U.S.tax policy.

Which statement about capital gains tax rates is TRUE?

Those who advocate reducing or eliminating the capital gains tax believe that:

Which statement about transfer taxes in the United States is TRUE?

Suppose a person buys a share of stock for $10.The day before the person dies,the stock is worth $20,as it is the day after the person dies.If the stock were sold the day before the person died,the basis would be ________; if the stock were sold the day after the person died,the basis would be _________,assuming earnings on assets are taxed as they are in the current U.S.system.

Taxation on accrual is best defined as:

If an individual purchases an asset and sells it before he dies,the capital gains tax burden is based on the:

According to the lock-in effect,individuals may:

Suppose that there is a 25% chance that an investment of $1,000 will rise in value to $1,400,and a 75% chance that the investment will fall in value to $900.What is the expected return on the investment?

Suppose that the government taxes income and investment earnings at 25% and allows half of investment losses to be deducted from taxable income,up to a maximum of $3,000 per year.Which of the following amounts is equal to the tax loss offset for someone who lost $5,000 on investments last year?