Deck 18: Taxation and Resource Allocation

Question 1

The individual income tax, the inheritance tax, and the head tax are all examples of direct taxes.

Answer 1

True

Question 2

Since the early 1970s, state and local taxes have remained relatively constant as a percentage of GDP.

Answer 2

True

Question 3

A progressive tax is one in which the fraction of income paid in taxes rises as a person's income increases.

Answer 3

True

Question 4

The share of GDP taken by taxes is considerably higher in the United States than in other countries.

Question 5

The marginal tax rate has less effect on economic incentives than does the average tax rate.

Question 6

The federal government receives most of its revenue from three sources: personal income tax, corporate income tax, and payroll tax.

Question 7

Direct taxes are levied on specific economic activities.

Question 8

The federal government of the United States relies heavily on value-added taxes.

Question 9

The head tax is regressive.

Question 10

Since the early 1950s, federal taxes have remained relatively constant as a percentage of GDP.

Question 11

When the average tax rate rises as income rises, this is known as progressive taxation.

Question 12

Sales taxes, property taxes, and value-added taxes are examples of indirect taxes.

Question 13

Tax loopholes are equally available to all taxpayers.

Question 14

A regressive tax is one in which the average tax rate falls as income rises.

Question 15

Homeowners receive tax benefits that are not available to renters.

Question 16

A proportional tax is one in which the fraction of income paid in taxes rises as a person's income increases.

Question 17

The share of GDP taken by taxes has increased dramatically since the 1960s.

Question 18

Indirect taxes are levied on specific economic activities.

Question 19

Existing loopholes erode the progressivity of the U.S.tax system.

Question 20

Direct taxes are levied directly on people or corporations.

Question 21

The payroll tax system is a proportional tax for all income earners.

Question 22

The system of grants from one level of government to another is an example of fiscal federalism.

Question 23

The payroll tax is the federal government's biggest source of revenue.

Question 24

The Social Security system works exactly like any private retirement trust system.

Question 25

State and local governments receive money from sales taxes, property taxes, and the federal government.

Question 26

Federal tax loopholes in personal income tax provide benefits only to very high-income people.

Question 27

Vertical equity in income taxation refers to the notion that persons with different levels of income should be taxed differently.

Question 28

Payroll taxes are used to collect revenue for the Social Security program.

Question 29

The sales tax is generally considered to be a regressive tax.

Question 30

The corporate tax applies to firms' total revenues.

Question 31

Property taxes are the main source of funding for public schools.

Question 32

Horizontal equity means that equally situated individuals should be taxed equally.

Question 33

When we say most Americans are in the 15-percent tax bracket, we mean federal taxes are about 15 percent of the income of most Americans.

Question 34

The concept of equity pertains to the fairness of a tax.

Question 35

All states have income taxes.

Question 36

Excise taxes are a form of sales tax.

Question 37

One major problem with Social Security is that it is a "pay as you go" system.

Question 38

Corporate taxes are a direct tax.

Question 39

Above a certain income the marginal social security tax drops to zero.

Question 40

Payments to Social Security recipients would decline if the retirement age were lowered.

Question 41

The total burden of a tax equals tax collections minus excess burdens.

Question 42

Loopholes reduce the efficiency of the tax system.

Question 43

A tax that reduces economic efficiency is always bad policy.

Question 44

Loopholes increase the efficiency of the tax system by making taxpayers better off.

Question 45

Vertical equity refers to the notion that equally situated individuals should be taxed equally.

Question 46

Federal personal income tax rates were

A) generally increased in the early 1990s and lowered in the 2000s.
B) generally increased in the 1980s and lowered in the early 1990s.
C) generally decreased in the 1990s and held constant in the 2000s.
D) held constant through the 1990s and 2000s.

Question 47

Taxation can promote good social policy while minimizing economic inefficiency.

Question 48

The incidence of a tax explains what group pays the burden of a tax.

Question 49

Vertical equity refers to the notion that individuals at all levels should be taxed equally.

Question 50

The share of GDP going to federal taxes

A) has been about 16 to 21 percent for the past 40 years.
B) has been about 35 percent for the past 40 years.
C) was about 40 percent until the early 1980s and has dropped greatly since then.
D) has risen steadily in the past 40 years to about 35 percent.

Question 51

Taxation alters the behavior patterns of individuals.

Question 52

The more inelastic the demand for a product, the larger the share of the tax that will be paid by consumers.

Question 53

An excess burden is present when taxpayers alter their behavior on account of taxation.

Question 54

No tax can lead the economy to higher levels of efficiency.

Question 55

Employers can shift payroll taxes by substituting capital for labor.

Question 56

The total burden of a tax equals tax receipts plus excess burden.

Question 57

The share of national income going to state and local taxes

A) has risen steadily in the past 40 years to about 22 percent.
B) has dropped steadily in the past 40 years to about 6 or 7 percent.
C) grew substantially until the early 1970s and has leveled off at about 10 to 11 percent.
D) fell steadily until the early 1970s and has risen steadily since then.

Question 58

The incidence of a payroll tax is borne by both employers and employees.

Question 59

The ability to shift a tax burden depends on the relative elasticities of demand and supply for the taxed commodity.

Question 60

The benefits principle states that the users of a service should pay for that service.

Question 61

Americans generally pay

A) a lower percentage of their incomes in taxes than citizens of other industrialized countries.
B) a lower percentage of their incomes in taxes than citizens of other industrialized countries, with the exceptions of Sweden and the Netherlands.
C) about the same percentage of their incomes in taxes as citizens of other industrialized countries.
D) a higher percentage of their incomes in taxes than citizens of other industrialized countries.

Question 62

A $10 fee to obtain a driver's license is a

A) regressive tax.
B) degressive tax.
C) proportional tax.
D) progressive tax.

Question 63

In Country X, the government requires employers to collect 9 percent of every employee's compensation as payroll tax.This is an example of

A) progressive tax.
B) regressive tax.
C) digressive tax.
D) proportional tax.

Question 64

A tax system under which an individual pays a higher fraction of his income in taxes at higher levels of income is formally described as

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

Question 65

Under a progressive tax, the fraction of income paid in taxes

A) rises as income rises.
B) is unchanged as income changes.
C) falls as income rises.
D) is proportional to the change in income.

Question 66

State governments' main source of revenue is

A) property taxes.
B) income taxes.
C) excise taxes.
D) sales taxes.

Question 67

The average tax rate is

A) the ratio of additional taxes to an additional dollar of income.
B) the ratio of taxes to income.
C) the ratio of taxes to GDP.
D) the ratio of income to direct taxes.

Question 68

The ____ is the fraction of each additional dollar of income that is paid in taxes.

A) deferred tax rate
B) cumulative tax rate
C) average tax rate
D) marginal tax rate

Question 69

If a tax is progressive, the average tax rate

A) remains the same as income rises.
B) rises as income rises.
C) falls as income rises.
D) falls with passage of time.

Question 70

Under a proportional tax, the fraction of income paid in taxes

A) rises as income rises.
B) is unchanged as income changes.
C) falls as income rises.
D) is proportional to the change in income.

Question 71

Taxes are either

A) regressive, proportional, or degressive.
B) regressive, proportional, or progressive.
C) degressive, proportional, or progressive.
D) regressive, progressive, or degressive.

Question 72

A progressive income tax system can be defined as one in which

A) the government uses taxes paid by the wealthy to fund programs for the poor.
B) an individual pays more dollars in taxes when his income rises.
C) the marginal tax rate rises over time.
D) the average tax rate is higher for individuals with higher incomes.

Question 73

Which of the following is an example of an indirect tax?

A) value-added tax
B) income tax
C) inheritance tax
D) head tax

Question 74

Which of the following is an example of a direct tax?

A) sales tax
B) property tax
C) gasoline tax
D) income tax

Question 75

The share of Gross Domestic Product paid by Americans in federal taxes is now roughly

A) 5 percent.
B) 160 percent.
C) 60 percent.
D) 65 percent.

Question 76

A progressive tax is one for which the percentage of each added dollar of income paid in taxes

A) increases as income increases.
B) remains the same as income increases.
C) decreases as income increases.
D) is zero after a certain maximum income is reached.

Question 77

Under a regressive tax, the fraction of income paid in taxes

A) rises as income rises.
B) is unchanged as income changes.
C) falls as income rises.
D) is proportional to the change in income.

Question 78

If a tax is proportional, the average tax rate

A) remains the same as income rises.
B) rises as income rises.
C) falls as income rises.
D) falls as income falls.

Question 79

Compared to other countries, the U.S.federal government relies

A) more heavily on direct taxes than do governments of other countries.
B) less heavily on direct taxes than do governments of other countries.
C) more heavily on indirect taxes than do governments of other countries.
D) on direct taxes about as heavily as do governments of other countries.

Question 80

If a tax is regressive, the average tax rate

A) remains the same as income rises.
B) rises as income rises.
C) falls as income rises.
D) falls as income falls.