Deck 12: The Design of the Tax System

Question 1

A budget surplus occurs when government receipts exceed government spending.

Answer 1

True

Question 2

As of 2005,the largest source of receipts for state and local governments was individual income taxes.

Answer 2

False

Question 3

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

Answer 3

False

Question 4

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

Question 5

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

Question 6

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

Question 7

Some states do not have a state income tax.

Question 8

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

Question 9

The U.S.tax burden is high compared to many European countries,but is low compared to many other nations in the world.

Question 10

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

Question 11

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

Question 12

As of 2005,the largest source of receipts for state and local governments was corporate income taxes.

Question 13

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

Question 14

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

Question 15

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.

Question 16

Poor countries such as India and Pakistan usually have low tax burdens.

Question 17

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

Question 18

A budget deficit occurs when government receipts exceed government spending.

Question 19

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

Question 20

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

Question 21

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 22

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 23

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

Question 24

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

Question 25

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

Question 26

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

Question 27

Lump-sum taxes are equitable but not efficient.

Question 28

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

Question 29

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

Question 30

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

Question 31

A lump-sum tax minimizes deadweight loss.

Question 32

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

Question 33

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

Question 34

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

Question 35

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

Question 36

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

Question 37

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

Question 38

Tax evasion is legal,but tax avoidance is illegal.

Question 39

Tax evasion is illegal,but tax avoidance is legal.

Question 40

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 41

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

Question 42

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

Question 43

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 44

In a regressive tax system,it is impossible for individuals with higher incomes to pay more in taxes than individuals with lower incomes.

Question 45

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

Question 46

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

Question 47

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

Question 48

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

Question 49

List the three most important expenditure programs of the federal government.How do they differ from the three most important expenditure programs of state and local governments? Explain why it makes more sense for the federal government to purchase "national defense" rather than state governments.

Question 50

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

Question 51

A recent increase in federal gasoline taxes was estimated to cause a $150 million reduction in the total surplus (consumer plus producer surplus)in the gasoline market.If tax revenues increased by $100 million,what is the deadweight loss associated with the tax? As a result of the tax,10,000 people sold their cars and started riding their bicycles to work.How much of the burden of the deadweight loss is incurred by the bicycle riders?

Question 52

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

Question 53

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

Question 54

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

Question 55

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

Question 56

Vertical equity is not consistent with a regressive tax structure.

Question 57

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 58

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

Question 59

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 60

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

Question 61

From the time of Benjamin Franklin to the present,the percentage of the average American's income that goes to pay taxes

A) has decreased from about 20 percent to about 10 percent.
B) has remained constant at about 10 percent.
C) has risen from less than 2 percent to about 44.4 percent.
D) has risen from less than 5 percent to about 33.3 percent.

Question 62

According to long-run projections,under current law,

A) federal government spending as a percentage of GDP will rise gradually but substantially in the next several decades.
B) federal taxes as a percentage of GDP will rise gradually but substantially in the next several decades.
C) the federal government's budget deficit will gradually be eliminated in the next several decades.
D) All of the above are correct.

Question 63

In 2007,which category represented the largest category of spending for the U.S.federal government?

A) Medicare
B) Social Security
C) National defense
D) Net interest

Question 64

Today the typical American pays approximately what percent of income in taxes,including all federal,state,and local taxes?

A) 5 percent
B) 18 percent
C) 33 percent
D) 50 percent

Question 65

The two types of taxes that are most important to state and local governments as sources of revenue are

A) individual income taxes and corporate income taxes.
B) sales taxes and individual income taxes.
C) sales taxes and property taxes.
D) social insurance taxes and property taxes.

Question 66

In 2007,approximately how much of federal government spending went to Social Security?

A) 10%
B) 20%
C) 30%
D) 40%

Question 67

Of the following countries,which country's government collects the largest amount of tax revenue as a percentage of that country's total income?

A) France
B) United States
C) Canada
D) Sweden

Question 68

The revenue that the federal government collects from payroll taxes is earmarked to pay for

A) National defense and income security (welfare)programs
B) National defense and Medicare
C) Social Security and public schools
D) Social Security and Medicare

Question 69

In 2007,approximately what percentage of federal government receipts came from individual income taxes?

A) 15%
B) 30%
C) 45%
D) 60%

Question 70

Which of the following is not an important reason for the projected increase in government spending as a percentage of GDP over the next several decades?

A) The increase in life expectancy resulting from advances in healthcare
B) A reduction in the average number of children per family.
C) The increase in the number of jobs lost each year to foreign countries as a result of outsourcing
D) The increase in the cost of healthcare

Question 71

Use Table A to complete Table B.

Question 72

The U.S.federal government collects about

A) one-third of the taxes in our economy.
B) one-half of the taxes in our economy.
C) two-thirds of the taxes in our economy.
D) three-fourths of the taxes in our economy.

Question 73

In 2007,which category represented the largest source of receipts for the U.S.federal government?

A) Medicare
B) Social Security
C) Corporate income taxes
D) Individual income taxes

Question 74

Who observed that "in this world nothing is certain but death and taxes"?

A) Mark Twain
B) P.T.Barnum
C) Ben Franklin
D) Richard Nixon

Question 75

The two taxes that together provide the U.S.federal government with approximately 80 percent of its revenue are

A) individual income taxes and property taxes.
B) individual income taxes and corporate income taxes.
C) individual income taxes and payroll taxes.
D) sales taxes and payroll taxes.

Question 76

Taxes on specific goods such as gasoline and alcoholic beverages are called

A) excise taxes.
B) payroll taxes.
C) sales taxes.
D) social insurance taxes.

Question 77

The concept of a "welfare program" is most closely associated with which particular federal government program?

A) Spending on medical research
B) Temporary Assistance for Needy Families (TANF)
C) Medicare
D) Social Security

Question 78

In 1789,the average American paid approximately what percent of income in taxes?

A) 5%
B) 15%
C) 33%
D) 50%

Question 79

The federal taxes owed by a taxpayer depend

A) only upon the marginal tax rate on the taxpayer's first $25,000 of income.
B) only upon the marginal tax rate on the taxpayer's last $10,000 of income.
C) upon all the marginal tax rates up to the taxpayer's overall level of income.
D) upon all the marginal tax rates,including those for income levels that exceed the taxpayer's overall level of income.

Question 80

Which of the following statements is correct?

A) Equity is more important than efficiency as a goal of the tax system.
B) Efficiency is more important than equity as a goal of the tax system.
C) Both equity and efficiency are important goals of the tax system.
D) Neither equity nor efficiency is an important goal of the tax system.