Deck 17: Taxation and Resource Allocation

Question 1

Direct taxes are levied directly on people or corporations.

Answer 1

True

Question 2

For about the last 45 years, federal taxes have remained relatively constant as a percentage of GDP.

Answer 2

True

Question 3

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

Answer 3

False

Question 4

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

Question 5

Indirect taxes are levied on specific economic activities.

Question 6

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

Question 7

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

Question 8

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

Question 9

Tax loopholes are equally available to all taxpayers.

Question 10

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

Question 11

For about the last 45 years, state and local taxes have remained relatively constant as a percentage of GDP.

Question 12

The head tax is regressive.

Question 13

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

Question 14

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

Question 15

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

Question 16

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

Question 17

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

Question 18

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

Question 19

Homeowners receive tax benefits that are not available to renters.

Question 20

Direct taxes are levied on specific economic activities.

Question 21

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

Question 22

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

Question 23

States rely primarily on income taxes as a source of revenue.

Question 24

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

Question 25

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

Question 26

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

Question 27

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

Question 28

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

Question 29

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

Question 30

The corporate tax applies to firms' total revenues.

Question 31

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

Question 32

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

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

Excise taxes are a form of sales tax.

Question 35

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

Question 36

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

Question 37

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

Question 38

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

Question 39

Corporate taxes are a direct tax.

Question 40

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

Question 41

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

Question 42

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

Question 43

Taxation alters the behavior patterns of individuals.

Question 44

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

Question 45

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

Question 46

Loopholes reduce the efficiency of the tax system.

Question 47

A tax that reduces economic efficiency is always bad policy.

Question 48

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

Question 49

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

Question 50

From the passage of the 16th amendment to the U.S.Constitution, income taxes became the primary source of income for the U.S.

Question 51

Payroll tax is a proportional tax.

Question 52

Taxation can promote good social policy while minimizing economic inefficiency.

Question 53

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

Question 54

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

Question 55

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

Question 56

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

Question 57

Pay as you go financing for the Social Security System was abandoned in 1983.

Question 58

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

Question 59

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

Question 60

Employers can shift payroll taxes by substituting capital for labor.

Question 61

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

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

Question 62

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 63

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 64

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 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

One major tax loophole intended to help state & local governments raise funds is:

A)fiscal federalism 
B)tax exempt municipal bond interest 
C)tax deductible mortgage interest  
D)tax credits for solar panels

Question 67

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 68

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 69

The share of GDP going to federal taxes

A)has been about 16 to 20 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 70

The shares of GDP taken in taxes by federal, state & local governments

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

Question 71

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 72

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 73

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 74

Since World War II, the share of corporate income tax collections in total federal revenue has been:

A)increasing rapidly.
B)declining rapidly.
C)increasing slowly.
D)declining generally.

Question 75

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 76

Taxes are either

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

Question 77

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.

Question 78

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 79

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 80

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

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