Question 1

A convenient tax has low compliance costs for taxpayers and low collection and enforcement costs for the government.

Accepted Answer

A) True 
 B)False  True

Question 2

Vervet County levies a real property tax based on the following schedule.  Bilex Inc. owns real property valued at $629,800. Compute Bilex's tax on this property.

Accepted Answer

A)   $13,798
B)   $7,500
C)   $6,298
D)   None of the above D

Question 3

Vervet County levies a real property tax based on the following schedule.  Which of the following statements is false?

Accepted Answer

A)   If Mr. Clem owns real property valued at $112,500, his average tax rate is 3%.
B)   If Ms. Barker owns real property valued at $455,650, her average tax rate is 2.1%.
C)   If Ms. Lumley owns real property valued at $750,000, her marginal tax rate is 1%.
D)   None of the above is false. D

Question 4

If a tax has a proportionate rate structure, a taxpayer's marginal rate and average rate are equal.

Accepted Answer

A) True 
 B)False

Question 5

The statement that "an old tax is a good tax" means that:

Accepted Answer

A)   Changes in the tax law create uncertainty in the business environment.
B)   Changes in the tax law disrupt traditional planning strategies.
C)   Changes in the tax law increase the compliance burden on businesses.
D)   All of the above.

Question 6

Congress plans to amend the federal individual income tax to eliminate the deductions for medical care, educational savings, charitable contributions, and home mortgage interest. Which of the following statements is true?

Accepted Answer

A)   The amendment will reduce the complexity of the tax.
B)   The amendment will increase the horizontal equity of the tax.
C)   The amendment will increase the neutrality of the tax.
D)   Both the amendment will reduce the complexity of the tax and will increase the neutrality of the tax.

Question 7

Individuals who believe that a tax system is fair are less likely to cheat on their taxes than individuals who believe that the system is unfair.

Accepted Answer

A) True 
 B)False

Question 8

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.

Question 9

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 10

Government officials of Country Z estimate that next year's public programs will cost $19 million but that tax revenues will be only $15 million. The officials could avoid a deficit next year by adopting which of the following fiscal strategies?

Accepted Answer

A)   Reduce the cost of public programs by $4 million.
B)   Increase taxes by $4 million.
C)   Borrow $4 million by issuing new government bonds.
D)   All of these strategies will avoid a deficit.

Question 11

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 answer of Mr. and Mrs. Boln earn $63,000 annual...

Question 12

Vertical equity focuses on measurement of the tax base, and horizontal equity focuses on the tax rate structure.

Accepted Answer

A) True 
 B)False

Question 13

The federal income tax law allows individuals whose property is destroyed by a natural disaster such as a fire or hurricane to reduce their taxable income by the amount of their financial loss. This rule is intended to improve the:

Accepted Answer

A)   Convenience of the tax
B)   Efficiency of the tax
C)   Horizontal equity of the tax
D)   Vertical equity of the tax

Question 14

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 15

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?
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?

Accepted Answer

The answer of Mr. Ohno owns and operates a part-time...

Question 16

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 17

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

Accepted Answer

A) True 
 B)False

Question 18

Government L levies a 4% excise tax on restaurant meals. It is considering reducing the rate to 2% on meals served in restaurants that ban cigarette and cigar smoking and to increase the rate to 5% in restaurants that allow smoking. Which of the following statements is true?

Accepted Answer

A)   The rate change would improve the neutrality of the excise tax.
B)   The rate change would improve the convenience of the tax.
C)   The rate change is intended to affect social behavior.
D)   Both the rate change would improve the convenience of the tax and the rate change is intended to affect social behavior are true.

Question 19

Government J decides that it must increase its tax revenue. Which of the strategies should result in more revenue?

Accepted Answer

A)   Increase the rate of an existing tax.
B)   Expand the base of an existing tax.
C)   Enact a tax on a new base.
D)   All of these strategies should result in more revenue for Government J.

Question 20

The city of Berne recently enacted a 10% tax on the price of a subway ticket. Consequently, Mrs. Lane now walks to work instead of taking the subway. Her behavior illustrates the substitution effect of a tax increase.

Accepted Answer

A) True 
 B)False

Exam 2: Policy Standards for a Good Tax

A convenient tax has low compliance costs for taxpayers and low collection and enforcement costs for the government.

Vervet County levies a real property tax based on the following schedule. Bilex Inc. owns real property valued at $629,800. Compute Bilex's tax on this property.

Vervet County levies a real property tax based on the following schedule. Which of the following statements is false?

If a tax has a proportionate rate structure, a taxpayer's marginal rate and average rate are equal.

The statement that "an old tax is a good tax" means that:

Congress plans to amend the federal individual income tax to eliminate the deductions for medical care, educational savings, charitable contributions, and home mortgage interest. Which of the following statements is true?

Individuals who believe that a tax system is fair are less likely to cheat on their taxes than individuals who believe that the system is unfair.

Which of the following statements concerning tax preferences is true?

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.

Government officials of Country Z estimate that next year's public programs will cost $19 million but that tax revenues will be only $15 million. The officials could avoid a deficit next year by adopting which of the following fiscal strategies?

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?

Vertical equity focuses on measurement of the tax base, and horizontal equity focuses on the tax rate structure.

The federal income tax law allows individuals whose property is destroyed by a natural disaster such as a fire or hurricane to reduce their taxable income by the amount of their financial loss. This rule is intended to improve the:

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

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

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

Government L levies a 4% excise tax on restaurant meals. It is considering reducing the rate to 2% on meals served in restaurants that ban cigarette and cigar smoking and to increase the rate to 5% in restaurants that allow smoking. Which of the following statements is true?

Government J decides that it must increase its tax revenue. Which of the strategies should result in more revenue?

The city of Berne recently enacted a 10% tax on the price of a subway ticket. Consequently, Mrs. Lane now walks to work instead of taking the subway. Her behavior illustrates the substitution effect of a tax increase.