Deck 17: The Federal Budget: Taxes and Spending

Question 1

In the United States, the marginal tax rate for married couples:

A) exceeds the average tax rate for most income levels.
B) is less than the average tax rate for most income levels.
C) is equal to the average tax rate for most income levels.
D) is less than the average tax rate at low income levels, but greater than the average tax rate at high income levels.

Answer 1

exceeds the average tax rate for most income levels.

Question 2

As income rises, the marginal tax rate for married couples:

A) decreases smoothly.
B) decreases in steps.
C) increases smoothly.
D) increases in steps.

Answer 2

increases in steps.

Question 3

The first payment of Social Security benefits began in:

A)1929.
B)1935.
C)1940.
D) 1955.

Answer 3

1940.

Question 4

Which of the following is NOT one of the main sources of tax revenue for the federal government?

A) individual income tax
B) Social Security and Medicare taxes
C) sales tax
D) corporate income tax

Question 5

Income that is not subject to taxation is called:

A) marginal income.
B) average income.
C) exempt income.
D) excluded income.

Question 6

Since 1960, marginal tax rates in the United States have decreased for individuals:

A) at all income levels.
B) with high incomes only.
C) with low incomes only.
D) at no income level.

Question 7

What are the three main sources of funds for the U.S. federal government?

A) individual income taxes, corporate income taxes, and Social Security and Medicare taxes
B) interest on government bonds, corporate income taxes, Social Security and Medicare taxes
C) interest on government bonds, individual income taxes, Social Security and Medicare taxes
D) interest on government bonds, individual income taxes, corporate income taxes

Question 8

The Social Security payment system began issuing Social Security checks:

A) at the end of World War II.
B) in 1940.
C) during the Great Depression.
D) in 1913.

Question 9

Since the mid-1950s, federal government spending has been about _____ of GDP.

A) 5%
B) 10%
C) 20%
D) 40%

Question 10

Which of the following is the largest source of tax revenue for the U.S. federal government?

A) individual income tax
B) corporate income tax
C) Social Security and Medicare taxes
D) estate taxes

Question 11

As of 2013, the level of per capita federal taxes collected in the United States was about:

A) $400.
B) $900.
C) $2,000.
D) $9,000.

Question 12

Which of the following sources of tax revenues make up more than 90% of all government revenue?

A) individual income tax, corporate income tax, and excise taxes
B) corporate income tax, Social Security and Medicare taxes, and estate taxes
C) individual income tax, corporate income tax, and Social Security and Medicare taxes
D) corporate income tax, Social Security and Medicare taxes, and excise taxes

Question 13

The second-largest source of revenue for the U.S. federal government is:

A) the corporate income tax.
B) the individual income tax.
C) excise taxes, such as taxes on gasoline and alcohol.
D) Social Security and Medicare taxes.

Question 14

As income rises, the average tax rate for married couples:

A) decreases smoothly.
B) decreases in steps.
C) increases smoothly.
D) increases in steps.

Question 15

In 1940, Ida May Fuller received the first Social Security check after contributing only $24.75 in Social Security taxes before she retired and lived to be 100 years old. Her case is an example of how:

A) Social Security payments were not issued to people who were close to retirement.
B) people can choose not to contribute to Social Security.
C) people begin to get Social Security payments before they retire.
D) the first Social Security recipients benefitted much more from the program than will workers entering the program today.

Question 16

In 2013, the U.S. federal government received about _____ in tax revenue.

A) $2.8 billion
B) $578 billion
C) $2.8 trillion
D) $578 trillion

Question 17

Which of the following accounts for the largest source of tax receipts for the U.S. federal government?

A) excise tax
B) corporate income tax
C) Social Security tax
D) individual income tax

Question 18

Since the mid-1950s, federal government taxation has been about _____ of GDP.

A) 5%
B) 10%
C) 18%
D) 38%

Question 19

What are the three largest sources of tax revenue for the U.S. federal government?

A) corporate income tax, excise taxes, and Social Security/Medicare taxes
B) individual income tax, corporate income tax, and sales tax
C) Social Security/Medicare taxes, corporate income tax, and custom duties
D) individual income tax, Social Security/Medicare taxes, and corporate income tax

Question 20

The largest source of revenue for the U.S. federal government is:

A) the corporate income tax.
B) the individual income tax.
C) excise taxes, such as taxes on gasoline and alcohol.
D) Social Security and Medicare taxes.

Question 21

The marginal tax rate is the:

A) average tax rate paid on all earned income.
B) tax rate paid on capital gains.
C) minimum tax rate paid on income in the United States.
D) tax rate paid on each additional dollar earned.

Question 22

Suppose a high-income individual, subject to a 15% capital gains tax rate, sells 100 shares of Company X for a price of $9 per share (purchased at $10 each) and 500 shares of Company Y for a price of $51 per share (purchased at $50 each). How much in capital gains tax will he pay?

A) $60
B) $75
C) $210
D) $3,690

Question 23

In a progressive tax system, if a person moves from one income bracket to a higher income bracket:

A) both the marginal tax rate and average tax rate will be higher.
B) both the marginal tax rate and average tax rate will be lower.
C) the marginal tax rate will be lower and the average tax rate will be higher.
D) the marginal tax rate will be higher and the average tax rate will be lower.

Question 24

Which of the following represents a change that has been made since the individual income tax was first levied in 1913?

A) In 1969, the overall tax system was changed from a regressive to a progressive set of tax rates.
B) In 1969, the alternative minimum tax was introduced to prevent the rich from paying no taxes.
C) The alternative minimum tax has been adjusted for inflation.
D) Social Security payments are no longer indexed to wages.

Question 25

Use the following to answer questions: Figure: U.S. Marginal and Average Tax Rates
(Figure: U.S. Marginal and Average Tax Rates) According to the tax rates shown in the figure, an individual who earns $150,000 a year has an approximate average tax rate of:

A) 28%.
B) 25%.
C) 20%.
D) 15%.

Question 26

Suppose the tax rate on the first $20,000 of income is 0%; 10% on the next $20,000 earned; and 20% on any additional income earned. The marginal tax rate for a person earning $30,000 is:

A) 10%.
B) 15%.
C) 20%.
D) more than 20%.

Question 27

The tax rate paid on an additional dollar of income is the:

A) higher tax rate.
B) secondary tax rate.
C) marginal tax rate.
D) reserve tax rate.

Question 28

Which statement about individual income taxes in the United States is TRUE?

A) All individuals pay the same average tax rate.
B) There is a huge difference in the tax rate paid within each bracket.
C) Taxes rates include and vary between 10% and 91%.
D) Marginal tax rates are flatter and lower today than in the past.

Question 29

Suppose a high-income individual, subject to a 15% capital gains tax rate, sells 100 shares of Company X and makes a loss of $500. She also sells 100 shares of Company Y and makes a profit of $1,200. How much in capital gains tax will she pay?

A) $75
B) $105
C) $180
D) $255

Question 30

The tax rate on an additional dollar of income is the:

A) average tax rate.
B) total tax rate.
C) marginal tax rate.
D) alternative minimum tax rate.

Question 31

The U.S. income tax system is:

A) proportional.
B) progressive.
C) regressive.
D) marginal.

Question 32

Suppose the tax rate on the first $20,000 of income is 0%; 10% on the next $20,000 earned; and 20% on any additional income earned. The average tax rate for a person earning $35,000 is:

A) 0%.
B) 3.5%.
C) 4.3%.
D) 10%.

Question 33

The marginal tax rate is:

A) the tax rate paid on an additional dollar of income.
B) higher on people with higher incomes.
C) the total tax payment divided by total income.
D) a separate income tax code begun in 1969 to prevent the rich from paying income taxes.

Question 34

The two lowest marginal tax brackets in the United States are:

A) 5% and 10%.
B) 7% and 15%.
C) 10% and 15%.
D) 15% and 25%.

Question 35

Use the following to answer questions: Figure: U.S. Marginal and Average Tax Rates
(Figure: U.S. Marginal and Average Tax Rates) According to the tax rates shown in the figure, an individual who earns $85,000 a year will pay income tax of:

A) $5,325.
B) $7,202.50.
C) $14,097.50.
D) $21,250.

Question 36

Suppose the tax rate on the first $20,000 of income is 0%; 10% on the next $20,000 earned; and 20% on any additional income earned. A person earning $35,000 pays an income tax of:

A) $1,000.
B) $1,500.
C) $2,000.
D) $3,500.

Question 37

Which tax rate determines whether it is worth it to work an extra day?

A) marginal
B) average
C) payroll (FICA)
D) capital gains

Question 38

Use the following to answer questions: Figure: U.S. Marginal and Average Tax Rates
(Figure: U.S. Marginal and Average Tax Rates) Using the tax rates shown in the figure, assume your annual income is $15,000, that you have a deduction of $1,800 for moving expenses, and that you claim four exemptions of $3,300: one for yourself and one for each of your three children. How much taxes are you expected to pay?

A) $0
B) $120
C) $132
D) $138

Question 39

Use the following to answer questions: Figure: U.S. Marginal and Average Tax Rates
(Figure: U.S. Marginal and Average Tax Rates) According to the tax rates shown in the figure, an individual who earns $63,700 a year, has no deductions, and claims no exemptions will pay income tax of:

A) $8,772.50.
B) $9,555.00.
C) $15,925.00.
D) $1,565.00.

Question 40

Taxpayers in the United States for the year 2014 received individual and dependent exemptions, each worth:

A) $3,650.
B) $3,950.
C) $3,300.
D) $4,300.

Question 41

The marginal tax rate is the tax rate paid on an:

A) average amount of income.
B) additional dollar of income.
C) average amount of spending.
D) additional dollar of spending.

Question 42

Is the marginal income tax rate or the average income tax rate higher for a typical person in the United States?

A) The marginal income tax rate is higher.
B) The average income tax rate is higher.
C) They are equal.
D) It depends on the person.

Question 43

Which of the following reduces taxable income?

A) deductions only
B) exemptions only
C) both deductions and exemptions
D) neither deductions nor exemptions

Question 44

At income levels above the limit for the lowest tax bracket, the average tax rate is:

A) greater than the marginal tax rate.
B) less than the marginal tax rate.
C) equal to the marginal tax rate.
D) below the marginal tax rate at first but above the marginal tax rate as income rises.

Question 45

Total tax payments divided by total income is called the:

A) last tax rate.
B) marginal tax rate.
C) total tax rate.
D) average tax rate.

Question 46

A country has two income tax brackets: people pay 10% on their first $50,000 and 20% on everything they earn over $50,000. If someone earns $75,000, how much tax does that person pay?

A) $5,000
B) $7,500
C) $10,000
D) $15,000

Question 47

The tax rate paid on an additional dollar of income is called the:

A) last tax rate.
B) marginal tax rate.
C) total tax rate.
D) average tax rate.

Question 48

The average tax rate is:

A) the tax rate paid on an additional dollar of income.
B) higher on people with higher incomes.
C) the total tax payment divided by total income.
D) a separate income tax code begun in 1969 to prevent the rich from paying income taxes.

Question 49

A country has two income tax brackets: people pay 10% on their first $50,000 and 20% on everything they earn over $50,000. If someone earns $75,000, what is that person's marginal tax rate?

A) 10%
B) 13.3%
C) 15%
D) 20%

Question 50

Currently, marginal tax rates are:

A) greater than in the past.
B) lower than in the past.
C) equal to average marginal tax rates of the past.
D) more unpredictable than in the past.

Question 51

If your income is $65,000, with income up to $17,000 subject to a 10% tax rate and income above $17,000 subject to 15% tax rate, then your average tax rate is:

A) 11.2%.
B) 12.5%.
C) 13.7%.
D) 14.2%.

Question 52

The income tax exemption for each individual in 2014 is:

A) $500.
B) $1,200
C) $2,850.
D) $3,950.

Question 53

The tax deduction for interest paid on home mortgages tends to:

A) increase housing prices.
B) decrease housing prices.
C) have no impact on housing prices.
D) make housing prices unpredictable.

Question 54

The most important tax for determining an individual's incentive to work is:

A) the last tax rate.
B) the marginal tax rate.
C) the total tax rate.
D) the average tax rate.

Question 55

If your marginal tax rate is 25% and you can exempt $3,650 of your income for each member of your family (yourself, your spouse, and your one child), then the exemption means you will save _____ in taxes.

A) $912.5
B) $1,825
C) $2,737.50
D) $3,650

Question 56

A country has two income tax brackets: people pay 10% on their first $50,000 and 20% on everything they earn over $50,000. It also has a personal exemption of $5,000. Who benefits more from the personal exemption, a person making $35,000 or a person making $75,000?

A) the person making $35,000
B) the person making $75,000
C) they benefit equally
D) It is impossible to tell.

Question 57

A country has two income tax brackets: people pay 10% on their first $50,000 and 20% on everything they earn over $50,000. If someone earns $75,000, what is that person's average tax rate?

A) 10%
B) 13.3%
C) 15%
D) 20%

Question 58

If tax rates are 10% on income up to $10,000, 20% for income between $10,001 and $20,000, and 30% for income over $20,000, the total tax payment for a person earning $25,000 is approximately:

A) $2,000.
B) $2,500.
C) $3,000.
D) $4,500.

Question 59

If tax rates are 10% on income up to $10,000, 20% for income between $10,001 and $20,000, and 30% for income over $20,000, the marginal tax rate for a person earning $25,000 is:

A) 10%.
B) 20%.
C) 25%.
D) 30%.

Question 60

If tax rates are 10% on income up to $10,000, 20% for income between $10,001 and $20,000, and 30% for income over $20,000, the average tax rate for a person earning $25,000 is:

A) 10%.
B) 18%.
C) 25%.
D) 30%.

Question 61

Who actually bears the burden of the FICA tax?

A) mostly employees
B) mostly employers
C) employees and employers in equal amounts
D) Congress

Question 62

The alternative minimum tax:

A) is the tax rate paid on an additional dollar of income.
B) has higher tax rates on people with higher incomes.
C) is the total tax payment divided by total income.
D) is a separate income tax code that began in 1969 to prevent the rich from not paying income taxes.

Question 63

The Federal Insurance Contributions Act tax is used to fund:

A) The Federal Deposit Insurance Corporation.
B) federal defense spending.
C) Social Security payments.
D) unemployment insurance.

Question 64

Who appears to pay the FICA tax?

A) mostly employees
B) mostly employers
C) employees and employers in equal amounts
D) Congress

Question 65

Capital gains taxes are paid:

A) any time an asset rises in value.
B) on bonds only.
C) only when an asset is actually sold.
D) mainly in times of deflation.

Question 66

The Social Security program in the United States is financed by:

A) individual income tax revenue.
B) corporate income tax revenue.
C) FICA tax revenue.
D) excise tax revenue.

Question 67

The FICA tax burden is:

A) paid entirely by the employer.
B) shared equally by employer and employee.
C) borne more by the employee even though the employer contributes an equal dollar amount.
D) the same amount as the alternative minimum tax burden.

Question 68

Originally the alternative minimum tax was supposed to:

A) alleviate the tax burden for low-income households.
B) ensure a minimum tax payment among super-rich households.
C) decrease taxes amongst the middle-class to the minimum level.
D) help low-income households with more than two children.

Question 69

The income tax is a tax on all of the following, except:

A) labor income.
B) interest income.
C) dividends and capital gains.
D) welfare benefits.

Question 70

The objective of the alternative minimum tax is to:

A) balance the federal budget.
B) ensure that even the poor pay some income taxes.
C) prevent the rich from not paying any income taxes.
D) raise the Social Security trust fund for retirees.

Question 71

The purpose of FICA taxes is to fund:

A) health services for elderly people.
B) defense expenditures.
C) presidential campaigns.
D) Social Security payments.

Question 72

If you purchased 10 shares of Goldman Sachs stock for $1,200 five years ago and decide to sell the stock today at a price of $1,500, how much will you owe in capital gains tax on your 10 shares? Assume the tax rate on capital gains is set at 15%.

A) $0
B) $45
C) $180
D) $225

Question 73

If you receive a capital gain of $2,000 from selling a stock but also incur a capital loss of $1,500 from selling another stock, the total amount of tax you pay based on a 15% capital gain tax rate is:

A) $0.
B) $75.
C) $225.
D) $300.

Question 74

The legislation Congress passed in 1969 to make sure that the rich pay at least some income taxes was called the:

A) flat tax code.
B) regressive tax code.
C) Social Security Tax.
D) alternative minimum tax.

Question 75

The alternative minimum tax has become an added tax burden on many upper-middle class families because:

A) Congress intended it to be that way.
B) it is not indexed to inflation.
C) it is indexed to inflation.
D) it is a regressive tax.

Question 76

Because the alternative minimum tax (AMT) is not indexed to inflation:

A) more American families have become subject to the AMT over time.
B) fewer American families have become subject to the AMT over time.
C) every American family is subject to the AMT today.
D) no American family is subject to the AMT today.

Question 77

If you purchased 10 shares of Goldman Sachs stock for $1,200 five years ago and continue to hold the stock today but its value has risen to $1,500, how much will you owe in capital gains tax on your 10 shares? Assume the tax rate on capital gains is set at 15%.

A) $0
B) $45
C) $180
D) $225

Question 78

The alternative minimum tax has effectively made the federal income tax:

A) a more regressive tax system.
B) a more progressive system.
C) a flat tax system.
D) the same in dollar terms for every taxpayer.

Question 79

The original purpose of the alternative minimum tax was to prevent the:

A) poor from paying income tax.
B) poor from not paying income tax.
C) rich from paying income tax.
D) rich from not paying income tax.

Question 80

An increase in the capital gains tax will most likely:

A) decrease investment.
B) raise the marginal tax rate.
C) raise the average tax rate.
D) increase investment.