Question 1

The complexity of the U.S. federal income tax system results in significant annual deadweight losses. The opportunity cost of the hours taxpayers spend on record keeping and completing their tax returns amounts to billions of dollars.
a. If the tax system was simplified, how would this benefit the economy?
b. Why hasn't the tax system been simplified?

Accepted Answer

The answer of The complexity of the U.S. federal income...

Question 2

The term "payroll taxes" is often used to refer to

Accepted Answer

A)  individual income taxes that are withheld from paychecks. 
B)  corporate income taxes. 
C)  Social Security and Medicare taxes. 
D)  sales taxes.

Question 3

All Gini coefficients must lie between 0 and 1. The lower the value,

Accepted Answer

A)  the more unequal the income distribution. 
B)  the closer the income distribution is to being equal. 
C)  the greater the degree of poverty. 
D)  the lower the degree of poverty according to the federal government's definition of poverty.

Question 4

The person or firm that pays a tax bears the burden of the tax.

Accepted Answer

A) True 
 B)False

Question 5

Which of the following is an example of a federal mandate?

Accepted Answer

A)  an excise tax 
B)  the Medicaid program 
C)  the personal tax exemption 
D)  the Food and Drug Administration (FD
A)

Question 6

Vertical-equity is most closely associated with which of the following goals or principles?

Accepted Answer

A)  the horizontal-equity principle 
B)  the goal of economic efficiency 
C)  the goal of attaining social objectives 
D)  the ability-to-pay principle

Question 7

Which of the following is the source of revenue for Medicare and Social Security in the United States?

Accepted Answer

A)  individual income taxes 
B)  sales taxes 
C)  social insurance taxes 
D)  property taxes

Question 8

The public choice model

Accepted Answer

A)  examines the degree of market power that the public exerts in a market economy. 
B)  examines the public's role in appointing politicians and ensuring that elected officials act in ways to reflect the public's preferences. 
C)  applies economic analysis to government decision making. 
D)  applies economic analysis to the collective decision making of consumers.

Question 9

The actual division of a tax between buyers and sellers in a market is the excess burden of the tax.

Accepted Answer

A) True 
 B)False

Question 10

The largest source of revenue for the federal government of the United States is from

Accepted Answer

A)  tariffs collected on imported goods. 
B)  property taxes imposed on private property. 
C)  sales taxes on items purchased for consumption. 
D)  individual income taxes.

Question 11

Economists James Buchanan and Gordon Tullock are well-known for developing

Accepted Answer

A)  the impossibility theorem. 
B)  the voting paradox. 
C)  the public choice model. 
D)  the concept of government failure.

Question 12

Studies by the U.S. Census Bureau have shown that

Accepted Answer

A)  families remain below the poverty line for an average of five years. 
B)  there is significant income mobility in the U.S. over time. 
C)  income mobility in the U.S. is minimal. 
D)  over half the people below the poverty line never move out of poverty.

Question 13

Income inequality in the United States has increased somewhat over the past 25 years. Two factors that appear to have contributed to this are

Accepted Answer

A)  tax cuts on high income individuals and large increases in prices of stocks. 
B)  strong economic growth and low inflation. 
C)  rapid technological change and expanding international trade. 
D)  outsourcing of jobs by U.S. firms and cuts in taxes on capital gains.

Question 14

Article Summary
In 2012, Colorado and Washington legalized marijuana for recreational use, and one of the major selling points in each state's pro-marijuana campaign was the possibility of generating millions of dollars in tax revenue from sales which could be used for funding general education. The Colorado legislature was weighing a proposal to tax marijuana at 30 percent, of which 15 percent would be a sales tax on consumers and 15 percent an excise tax on growers. Washington has set a tax rate of 44 percent on consumers and 25 percent each for growers and retailers. Since the legalization of marijuana is relatively new, projecting the economic impact of its sale is difficult, leading to many questions as to the quantities that will be produced and sold and what actual tax revenues will be generated.
Source: Elizabeth Dwoskin, "Colorado and Washington Try to Figure Out How to Tax Marijuana," Bloomberg Businessweek, April 26, 2013.
-Which of the following is not one of the concerns of some policymakers and economists that the increase in the share of income earned by the 1 percent is damaging to the country?

Accepted Answer

A)  The higher incomes of the 1 percent may give them disproportionate political influence through campaign contributions. 
B)  Countries with high levels of income inequality have lower growth rates than do countries with more equal distributions of income. 
C)  further increases in marginal tax rates may reduce work, saving, and investment, thereby reducing economic growth. 
D)  Rising income inequality can lead to political unrest.

Question 15

The largest source of tax revenue for state and local governments in the United States in 2012 was

Accepted Answer

A)  sales taxes. 
B)  the corporate income tax. 
C)  the property tax. 
D)  the individual income tax.

Question 16

Congressman Flack votes for a program that will benefit the constituents of Congressman Walpole. Which of the following explanations for Flack's vote is most consistent with the public choice model?

Accepted Answer

A)  Congressman Flack did not have time to read and understand all of the legislation he voted on. Members of Congress often depend on their staffs to read proposed legislation and recommend how they should vote. 
B)  Legislators such as Congressman Flack are similar to other decision-makers in that they sometimes make irrational choices. 
C)  Congressman Flack will support programs of legislators from his own party, regardless of who benefits from these programs. 
D)  Congressman Flack expects Congressman Walpole's support for programs that will benefit Flack's constituents.

Question 17

Congressman Gallstone seeks support from his colleagues for a bill he sponsors that will establish a new national park in his district. He offers to support Congresswoman Disrail's proposal to build a new library in her district in exchange for her vote for his national park bill. This is an example of

Accepted Answer

A)  regulatory capture. 
B)  logrolling. 
C)  rational ignorance. 
D)  government failure.

Question 18

A statistical tool used to measure inequality is

Accepted Answer

A)  the Lorenz curve. 
B)  the Gini coefficient. 
C)  the absolute poverty rate. 
D)  the relative poverty rate.

Question 19

What does a Lorenz curve illustrate?

Accepted Answer

A)  a comparison of the distribution of income in two different countries 
B)  the distribution of income within a country in a given time period 
C)  the share of taxes paid by different groups of households 
D)  the change over time in the percentage of households with incomes that place them below the poverty line

Question 20

Which of the following statements best represents the opinion of many economists regarding the impact that changes in tax laws have had on recent changes in income inequality in the United States?

Accepted Answer

A)  Reductions in income tax rates have favored high-income individuals more than low-income individuals. As a result, reductions in federal income tax rates have led to more income inequality. 
B)  Reductions in income tax rates have created greater incentives for low-income individuals to work, save and invest. As a result, reductions in federal income tax rates have led to less income inequality. 
C)  Reductions in income tax rates probably have had little impact on the distribution of income. 
D)  Reductions in income tax rates have been offset by increases in corporate income tax rates and payroll taxes. As a result, greater income inequality in the 1990s has been followed by a more equal distribution of income since 2001.

Exam 18: Public Choice, Taxes, and the Distribution of Income