Question 1

Suppose an excise tax is imposed on luxury boats and yachts. Economists argue that such a tax

Accepted Answer

A)  is sure to be vertically equitable, since buyers of luxury boats and yachts are wealthy. 
B)  entails no deadweight loss as long as buyers of boats and yachts can easily substitute one luxury good for another. 
C)  violates the benefits principle of taxation. 
D)  may burden workers in the luxury-boat-and-yacht industry more than it burdens the buyers of luxury boats and yachts. 
A)  is sure to be vertically equitable, since buyers of luxury boats and yachts are wealthy. 
B)  entails no deadweight loss as long as buyers of boats and yachts can easily substitute one luxury good for another. 
C)  violates the benefits principle of taxation. 
D)  may burden workers in the luxury-boat-and-yacht industry more than it burdens the buyers of luxury boats and yachts.

Question 2

Some states do not have a state income tax.

Accepted Answer

A) True 
 B)False

Question 3

Table 12-24  
-Refer to Table 12-24. Does the tax system achieve vertical equity?

Accepted Answer

Yes. People with hig

Question 4

Briefly describe some of the demographic trends that are predicted to increase the government's budget deficit.

Accepted Answer

Social Security and Medicare payments wi

Question 5

Table 12-9
United States Income Tax Rates for a Single Individual, 2012 and 2013.  
-Refer to Table 12-9. Harry is a single person whose taxable income is $35,000 a year. What is his marginal tax rate in 2012?

Accepted Answer

A)  15% 
B)  28% 
C)  31% 
D)  36% 
A)  15% 
B)  28% 
C)  31% 
D)  36%

Question 6

Table 12-10  
-Refer to Table 12-10. If Willie has $170,000 in taxable income, his marginal tax rate is

Accepted Answer

A)  25%. 
B)  28%. 
C)  33%. 
D)  35%. 
A)  25%. 
B)  28%. 
C)  33%. 
D)  35%.

Question 7

In 2010, the co­chairmen of President Obama's deficit reduction commission proposed curtailing or eliminating many tax deductions such as the one for mortgage interest. Economists who favor the proposal argue that it would (iii) encourage private philanthropy.

Accepted Answer

A)  (i) only 
B)  (ii) only 
C)  (i) and (ii) only 
D)  (i), (ii), and (iii) 
A)  (i) only 
B)  (ii) only 
C)  (i) and (ii) only 
D)  (i), (ii), and (iii)

Question 8

Table 12-20
The following table presents the total tax liability for an unmarried taxpayer under four different tax schedules for the income levels shown.  
-Refer to Table 12-20. Which tax schedules are progressive?

Accepted Answer

A)  Tax Schedule A only 
B)  Tax Schedule A and Tax Schedule B 
C)  Tax Schedule A, Tax Schedule B, and Tax Schedule C 
D)  All four Tax Schedules are progressive. 
A)  Tax Schedule A only 
B)  Tax Schedule A and Tax Schedule B 
C)  Tax Schedule A, Tax Schedule B, and Tax Schedule C 
D)  All four Tax Schedules are progressive.

Question 9

Table 12-10  
-Refer to Table 12-10. If Miss Kay has $80,000 in taxable income, her tax liability is

Accepted Answer

A)  $11,581. 
B)  $16,181. 
C)  $20,000. 
D)  $24,881. 
A)  $11,581. 
B)  $16,181. 
C)  $20,000. 
D)  $24,881.

Question 10

Taxes on specific goods such as gasoline and alcoholic beverages are called

Accepted Answer

A)  excise taxes. 
B)  payroll taxes. 
C)  sales taxes. 
D)  social insurance taxes. 
A)  excise taxes. 
B)  payroll taxes. 
C)  sales taxes. 
D)  social insurance taxes.

Question 11

Social Security is an income support program, designed primarily to maintain the living standards of the poor.

Accepted Answer

A) True 
 B)False

Question 12

Taxes can create deadweight losses because they

Accepted Answer

A)  allow the government to fund private goods. 
B)  create administrative burdens as people comply with tax laws. 
C)  allow the government to fund public goods. 
D)  Both b and c are correct. 
A)  allow the government to fund private goods. 
B)  create administrative burdens as people comply with tax laws. 
C)  allow the government to fund public goods. 
D)  Both b and c are correct.

Question 13

Sales taxes generate nearly 50% of the tax revenue for state and local governments.

Accepted Answer

A) True 
 B)False

Question 14

A consumption tax is a tax on

Accepted Answer

A)  goods but not on services. 
B)  the amount of income that people spend. 
C)  the amount of income that people earn. 
D)  the amount of income that people save. 
A)  goods but not on services. 
B)  the amount of income that people spend. 
C)  the amount of income that people earn. 
D)  the amount of income that people save.

Question 15

Part of the administrative burden of a tax is

Accepted Answer

A)  the money people pay to the government in taxes. 
B)  reducing the size of the market because of the tax. 
C)  the hassle of filling out tax forms that is imposed on taxpayers who comply with the tax. 
D)  the cost of administering programs that use tax revenue. 
A)  the money people pay to the government in taxes. 
B)  reducing the size of the market because of the tax. 
C)  the hassle of filling out tax forms that is imposed on taxpayers who comply with the tax. 
D)  the cost of administering programs that use tax revenue.

Question 16

If transfer payments are included when evaluating tax burdens, then the average tax rate of the poorest quintile of taxpayers would be approximately

Accepted Answer

A)  negative 30 percent. 
B)  negative 10 percent. 
C)  positive 1 percent. 
D)  positive 8 percent. 
A)  negative 30 percent. 
B)  negative 10 percent. 
C)  positive 1 percent. 
D)  positive 8 percent.

Question 17

The marginal tax rate for a lump-sum tax

Accepted Answer

A)  is always positive. 
B)  is always negative. 
C)  is zero. 
D)  can take on any value but must be greater than the average tax rate. 
A)  is always positive. 
B)  is always negative. 
C)  is zero. 
D)  can take on any value but must be greater than the average tax rate.

Question 18

Vertical equity in taxation refers to the idea that people

Accepted Answer

A)  in unequal conditions should be treated differently. 
B)  in equal conditions should pay equal taxes. 
C)  should pay taxes based on the benefits they receive from the government. 
D)  should pay a proportional tax rather than a progressive tax. 
A)  in unequal conditions should be treated differently. 
B)  in equal conditions should pay equal taxes. 
C)  should pay taxes based on the benefits they receive from the government. 
D)  should pay a proportional tax rather than a progressive tax.

Question 19

One characteristic of an efficient tax system is that it minimizes the costs associated with revenue collection.

Accepted Answer

A) True 
 B)False

Question 20

Corporate income taxes are based on the amount of revenue a corporation earns.

Accepted Answer

A) True 
 B)False

Exam 12: The Design of the Tax System

Suppose an excise tax is imposed on luxury boats and yachts. Economists argue that such a tax

Some states do not have a state income tax.

Table 12-24 -Refer to Table 12-24. Does the tax system achieve vertical equity?

Briefly describe some of the demographic trends that are predicted to increase the government's budget deficit.

Table 12-9 United States Income Tax Rates for a Single Individual, 2012 and 2013. -Refer to Table 12-9. Harry is a single person whose taxable income is $35,000 a year. What is his marginal tax rate in 2012?

Table 12-10 -Refer to Table 12-10. If Willie has $170,000 in taxable income, his marginal tax rate is

In 2010, the co­chairmen of President Obama's deficit reduction commission proposed curtailing or eliminating many tax deductions such as the one for mortgage interest. Economists who favor the proposal argue that it would (iii) encourage private philanthropy.

Table 12-20 The following table presents the total tax liability for an unmarried taxpayer under four different tax schedules for the income levels shown. -Refer to Table 12-20. Which tax schedules are progressive?

Table 12-10 -Refer to Table 12-10. If Miss Kay has $80,000 in taxable income, her tax liability is

Taxes on specific goods such as gasoline and alcoholic beverages are called

Social Security is an income support program, designed primarily to maintain the living standards of the poor.

Taxes can create deadweight losses because they

Sales taxes generate nearly 50% of the tax revenue for state and local governments.

A consumption tax is a tax on

Part of the administrative burden of a tax is

If transfer payments are included when evaluating tax burdens, then the average tax rate of the poorest quintile of taxpayers would be approximately

The marginal tax rate for a lump-sum tax

Vertical equity in taxation refers to the idea that people

One characteristic of an efficient tax system is that it minimizes the costs associated with revenue collection.

Corporate income taxes are based on the amount of revenue a corporation earns.

Ten Principles of Economics

Thinking Like an Economist

Interdependence and the Gains From Trade

The Market Forces of Supply and Demand

Elasticity and Its Application

Supply, Demand, and Government Policies

Consumers, Producers, and the Efficiency of Markets

Application: the Costs of Taxation

Application: International Trade

Externalities

Public Goods and Common Resources

The Costs of Production

Firms in Competitive Markets

Monopoly

Monopolistic Competition

Oligopoly

The Markets for the Factors of Production

Earnings and Discrimination

Income Inequality and Poverty

The Theory of Consumer Choice

Frontiers of Microeconomics

Measuring a Nations Income

Measuring the Cost of Living

Production and Growth

Saving, Investment, and the Financial System

The Basic Tools of Finance

Unemployment

The Monetary System

Money Growth and Inflation

Open-Economy Macroeconomics: Basic Concepts

A Macroeconomic Theory of the Open Economy

Aggregate Demand and Aggregate Supply

The Influence of Monetary and Fiscal Policy on Aggregate Demand

The Short-Run Trade-Off Between Inflation and Unemployment

Six Debates Over Macroeconomic Policy

Filters

In 2010, the cochairmen of President Obama's deficit reduction commission proposed curtailing or eliminating many tax deductions such as the one for mortgage interest. Economists who favor the proposal argue that it would (iii) encourage private philanthropy.