Deck 14: Taxation of Personal Income in the United States 

Question 1

Taxable income in the United States amounts to less than 50 percent of personal income.

Answer 1

True

Question 2

Under current rules, only real interest earned is subject to income tax.

Answer 2

False

Question 3

If a progressive income tax is replaced with an equal-yield, flat-rate tax, then work effort will unequivocally increase.

Answer 3

False

Question 4

The cuts in marginal tax rates initiated in 2001 were introduced to reduce the excess burden of tax pref?erences.

Question 5

The earned income tax credit is a negative tax that subsidizes the earnings of low-income workers.

Question 6

The highest statutory marginal tax rate under the federal personal income tax is 50 percent.

Question 7

Taxable income in the United States exceeds adjusted gross income.

Question 8

Tax preferences are exclusions, exemptions, and deductions from the tax base.

Question 9

Tax preferences:

A)are exclusions, exemptions, and deductions from the tax base.
B)are in the tax code by accident.
C)are extra taxes on certain taxpayers.
D)increase the amount of income that is taxable.

Question 10

Tax credits vary with a person's marginal tax rate.

Question 11

As of 2018, the marriage penalty still applies for the highest income taxpayers.

Question 12

The tax base under the personal income tax in the United States is the Haig-Simons definition of comprehensive income.

Question 13

A tax deduction allowed for an activity for which positive externalities are not likely to exist (such as home ownership) is likely to cause the marginal social cost of the activity to exceed its marginal social benefit.

Question 14

Realized, long-term capital gains that reflect inflation are currently exempt from taxation.

Question 15

Tax preferences are really subsidies to certain activities.

Question 16

Taxable income in the United States includes all capital gains earned, whether or not they are realized.

Question 17

The U.S.personal income tax is not a progressive tax.

Question 18

Income-in-kind is not considered a tax preference.

Question 19

The value of a personal exemption to a taxpayer varies with his or her marginal tax rate.

Question 20

Adjusted gross income, as defined by the United States Tax Code,

A)exceeds taxable income.
B)equals taxable income.
C)is less than taxable income.
D)is greater than comprehensive income.

Question 21

Under the federal personal income tax rules prevailing as of 2018,

A)all interest expense is tax deductible.
B)the interest expense for mortgages on first and second homes is tax deductible.
C)the interest expense for mortgages only on first homes is tax deductible.
D)no interest is tax deductible.

Question 22

If the excess burden from tax is $10 million, lowering marginal tax rates should make the excess burden:

A)more than $10 million.
B)less than $10 million.
C)remain at $10 million.
D)none of these is certain to occur

Question 23

Which is an example of an itemized deduction under the U.S.code as of 2018?

A)State and local income tax
B)State and local property tax
C)All medical expenses
D)Both (a) and (b) are correct.

Question 24

Which is a justification for tax preferences?

A)Administrative difficulties
B)Improving equity
C)Encouraging private expenditures that create external benefits
D)All of these are correct.

Question 25

The exclusion of interest of state and local bonds from taxation by the federal government:

A)decreases interest costs for state and local governments.
B)increases interest costs for state and local governments.
C)benefits lower-income taxpayers more than upper-income taxpayers.
D)discourages borrowing by local governments.

Question 26

Currently, the tax treatment of capital gains in the United States is such that:

A)all capital gains are taxed.
B)all realized capital gains are taxed.
C)most realized capital gains are taxed.
D)only capital gains adjusted for inflation are taxed.

Question 27

Tax expenditures are:

A)expenditures made to collect taxes.
B)losses in revenue due to tax preferences.
C)less than 1 percent of tax revenue.
D)both (b) and (c) are correct.

Question 28

The reduction in marginal tax rates will:

A)increase the excess burden of tax preferences.
B)increase tax expenditures.
C)decrease the excess burden of tax preferences.
D)have no effect of tax expenditures.

Question 29

There are several features in the federal income tax that encourage home ownership.List those features and show how they provide subsidies for homeowners.Explain how the price of housing might be affected if all these subsidies were eliminated.Why has the reduction in marginal tax rates in recent years reduced tax expenditures that subsidize home ownership?

Question 30

A taxpayer is in a 33-percent tax bracket and itemizes deductions.He obtains a mortgage from a bank at 9-percent interest.The actual rate of interest he pays is:

A)6 percent.
B)9 percent.
C)20 percent.
D)25 percent.

Question 31

Which of the following is true for the federal income tax in the United States?

A)All income irrespective of its source or use is taxed at the same rate.
B)Comprehensive income is the tax base.
C)The tax base is less than 50 percent of comprehensive income.
D)All realized and unrealized capital gains are included in the tax base.

Question 32

Based on TJCA, the value of personal exemptions:

A)is $0.00.
B)is $2400.00.
C)varies with taxpayers' marginal tax rates.
D)is the same as the standard deduction.

Question 33

As of 2018, the highest marginal tax rate was:

A)39%.
B)38%.
C)37%.
D)32%.

Question 34

A shift to an equal-yield, flat-rate personal income tax from the current progressive income tax rate structure will:

A)reduce the tax burden on upper-income groups.
B)increase the tax burden on upper-income groups.
C)increase the share of taxes paid by lower-income groups.
D)both (a) and (c) are correct.

Question 35

"Bracket creep" is no longer a problem in the United States because:

A)the tax brackets are indexed.
B)capital gains are now fully taxable.
C)only real interest is taxed.
D)capital gains are indexed.

Question 36

Removing savings from the tax base of the personal income tax is likely to:

A)increase work effort.
B)decrease work effort.
C)lower market equilibrium interest rates by increasing the supply of loanable funds.
D)increase market equilibrium interest rates, thereby increasing the demand for loanable funds.

Question 37

The personal income tax in the United States is very different from a comprehensive income tax.How would income distribution and resource use change if a flat-rate tax on comprehensive income were substituted for the current progressive income tax?

Question 38

Because of the Earned Income Tax Credit, the effective tax rate for the lowest-income taxpayers in the United States is:

A)only 15 percent.
B)higher than that paid by upper-income taxpayers.
C)zero.
D)negative.

Question 39

Which of the following is the result of The Economic Growth and Tax Relief Reconciliation Act enacted in 2001?

A)The highest marginal tax rate was reduced.
B)increased The marriage penalty increased.
C)It created a new 40% tax bracket.
D)Both (a) and (c) are correct.

Question 40

The excess burden of tax preferences:

A)depends on average tax rates.
B)will be higher, the higher the marginal tax rate is.
C)will be lower, the higher the marginal tax rate is.
D)is independent of marginal tax rates.