Deck 12: The Design of the Tax System

Question 1

One reason for the projected increase, over the next several decades, in government spending as a percentage of GDP is the projected increase in the size of the elderly population.

Answer 1

True

Question 2

A budget deficit occurs when government receipts fall short of government spending.

Answer 2

True

Question 3

The average American pays a higher percent of his income in taxes today than he would have in the late 18th century.

Answer 3

True

Question 4

A payroll tax is also referred to as a social insurance tax.

Question 5

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

Question 6

The U.S. tax burden is high compared to many European countries..

Question 7

A budget deficit occurs when government receipts exceed government spending.

Question 8

A family's tax liability is the amount of money it owes in taxes.

Question 9

The U.S. federal government collects about one-half of the taxes in our economy.

Question 10

The largest category of federal spending is national defense.

Question 11

Government spending is projected to rise over the next few decades. Three of the most important reasons are spending on Social Security, Medicare, and healthcare.

Question 12

In the United States, all families pay the same proportion of their income in taxes.

Question 13

An excise tax is a tax on a specific good, like gasoline.

Question 14

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

Question 15

The government raises revenue through taxation to pay for the services it provides.

Question 16

A budget surplus occurs when government receipts exceed government spending.

Question 17

A budget surplus occurs when government receipts fall short of government spending.

Question 18

Revenues from social insurance taxes are earmarked to pay for Social Security and Medicare.

Question 19

Individual income taxes generate roughly 25% of the tax revenue for the federal government.

Question 20

Individual income taxes and social insurance taxes generate the highest tax revenue for the federal government.

Question 21

Tax evasion is legal, but tax avoidance is illegal.

Question 22

By law, all states must have a state income tax.

Question 23

Some states do not have a state income tax.

Question 24

In 2014, the largest source of receipts for state and local governments was individual income taxes.

Question 25

If a tax generates a reduction in surplus that is exactly offset by the tax revenue collected by the government, the tax does not have a deadweight loss.

Question 26

The administrative burden of complying with tax laws is a cost to the government but not to taxpayers.

Question 27

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

Question 28

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

Question 29

Tax evasion is illegal, but tax avoidance is legal.

Question 30

Deadweight losses arise because a tax causes some individuals to change their behavior.

Question 31

In 2011, state and local government education spending was more than five times highway spending.

Question 32

In 2014, the largest source of receipts for state and local governments was corporate income taxes.

Question 33

The administrative burden of any tax system is part of the inefficiency it creates.

Question 34

European countries tend to rely more on consumption taxes than does the United States.

Question 35

An efficient tax system is one that imposes small deadweight losses and small administrative burdens.

Question 36

In practice, the U.S. income tax system is filled with special provisions that alter a family's tax based on its specific circumstances.

Question 37

Resources devoted to complying with the tax laws are a type of deadweight loss.

Question 38

An advantage of a consumption tax is that it does not distort the incentive to save.

Question 39

Income taxes and property taxes generate the highest tax revenue for state and local governments.

Question 40

The equity of a tax system concerns whether the tax burden is distributed equally among the population.

Question 41

If all taxpayers pay the same percentage of income in taxes, the tax system is proportional.

Question 42

According to the ability-to-pay principle, it is fair for people to pay taxes based on the amount of government services that they receive.

Question 43

Vertical equity refers to a tax system in which individuals with similar incomes pay similar taxes.

Question 44

When the total surplus lost as a result of a tax is less than the amount of tax revenue collected by the government there is a deadweight loss.

Question 45

If James earns $80,000 in taxable income and pays $20,000 in taxes, his average tax rate is 25 percent.

Question 46

A lump-sum tax would take different amounts from the poor and the rich.

Question 47

If Christopher earns $80,000 in taxable income and pays $20,000 in taxes, his average tax rate is 20 percent.

Question 48

Antipoverty programs funded by taxes on the wealthy are sometimes advocated on the basis of the benefits principle.

Question 49

If all taxpayers pay the same percentage of income in taxes, the tax system is progressive.

Question 50

If Mary earns $80,000 in taxable income and pays $40,000 in taxes, her marginal tax rate must be 50 percent.

Question 51

Most economists believe that a corporate income tax affects the stockholders of a corporation but not its employees or customers.

Question 52

Vertical equity refers to a tax system in which individuals with higher incomes pay more in taxes than individuals with lower incomes.

Question 53

According to the ability-to-pay principle, it is fair for people to pay taxes based on their ability to handle the financial burden.

Question 54

Deadweight losses and administrative burdens are key factors considered when determining the efficiency of the tax system.

Question 55

The marginal tax rate serves as a measure of the extent to which the tax system discourages people from working.

Question 56

According to the benefits principle, it is fair for people to pay taxes based on the benefits they receive from the government.

Question 57

A lump-sum tax minimizes deadweight loss.

Question 58

According to the benefits principle, it is fair for people to pay taxes based on their ability to shoulder the tax burden.

Question 59

Lump-sum taxes are equitable but not efficient.

Question 60

Many people consider lump-sum taxes to be unfair to low-income taxpayers.

Question 61

Horizontal equity refers to a tax system in which individuals with higher incomes pay more in taxes than individuals with lower incomes.

Question 62

Horizontal equity can be difficult to assess because it is difficult to compare the similarity of tax payers.

Question 63

Which of the following tax systems is the most fair?

A)proportional taxes
B)regressive taxes
C)progressive taxes
D)There is no objective way to assess fairness among the three systems.

Question 64

Economists play an important role in the complex debates over tax policy by

A)identifying efficiency as the most important goal of tax policy.
B)identifying equity as the most important goal of tax policy.
C)shedding light on the tradeoff between efficiency and equity in tax policy.
D)None of the above is correct.

Question 65

​Rob's income rises from $50,000 to $60,000 and his income tax increases from $6,000 to $7,500.His marginal tax rate is 12.5%.

Question 66

Horizontal and vertical equity are the two primary measures of efficiency of a tax system.

Question 67

​A city finances a performing arts center by adding a $2.75 tax to each ticket sold.This is an example of taxation via the benefits principle.

Question 68

Horizontal equity refers to a tax system in which individuals with similar incomes pay similar taxes.

Question 69

Vertical and horizontal equity are widely accepted and applying them to evaluate a tax system is always straightforward.

Question 70

In choosing the form of a tax, there is often a tradeoff between

A)allocative and productive efficiency.
B)profits and revenues.
C)efficiency and fairness.
D)fairness and profits.

Question 71

​A lump-sum tax does not produce a deadweight loss.

Question 72

A tax system exhibits vertical equity when taxpayers with similar abilities to pay contribute the same amount.

Question 73

Vertical equity is not consistent with a regressive tax structure.

Question 74

To fully understand the progressivity of government policies, one should only look at the proportion of total income that individuals pay in taxes each year.

Question 75

Goals of efficiency and equity in tax policy are

A)complementary in most countries.
B)necessary for application of the ability-to-pay principle.
C)often in conflict with each other.
D)easier to achieve when tax codes are complex.

Question 76

​Sonja paid $15,000 in taxes after having earned $100,000. Amanda paid $22,000 in taxes after having earned an income of $146,667.This is an example of a proportional tax.

Question 77

A lump sum tax can never have horizontal equity.

Question 78

Economics alone cannot determine the best way to balance the goals of efficiency and equity.

Question 79

​Karole's income rises from $50,000 to $75,000 and her income tax increases from $8,000 to $9,500.Her average tax rate is 6%.

Question 80

If the rich pay more in taxes than the poor, the tax system must be progressive.