Deck 13: The Taxation of Income

Question 1

The sustainable flow of purchasing power available to an individual is equal to _____.

A)the Fisher definition of income.
B)the Haig-Simons definition of income
C)consumption
D)investment

Answer 1

A

Question 2

Tax paid on income from a rental property represents _____.

A)a consumption tax
B)double taxation
C)progressive taxation
D)estate taxation

Answer 2

B

Question 3

Two taxes that have consumption as a tax base are ____ taxes and _____ taxes.

A)income;general sales
B)general sales;valued-added
C)excise;income
D)estate;retail sales

Answer 3

B

Question 4

Income taxes cause _____.

A)individuals to substitute towards leisure
B)individuals to substitute towards jobs with more in-kind benefits
C)individuals to work in underground markets
D)all of the above

Question 5

Imputed rental income ____.

A)is payment made by rental owners to facility management companies
B)provides no value to the recipient
C)is the dollar amount of the rental value of an owner-occupied home
D)is the dollar amount of the rental value of a renter-occupied home

Question 6

The dollar value of the maximum amount one can consume over a given period without reducing the value of one's wealth is the _____.

A)definition of income used to approximate in-kind benefits
B)Fisher definition of income
C)Laffer definition of income
D)Haig-Simons definition of income

Question 7

When an employer provides in-kind benefits to employees,the In-kind benefits are _____.

A)never taxed as income
B)sometimes taxed as income
C)always taxed as income
D)always taxed as consumption

Question 8

An income tax provides an incentive to _____.

A)work for large companies
B)increase investment
C)substitute away from being self-employed
D)consume more and save less

Question 9

Which of the following is not an in-kind benefit?

A)A company life insurance policy.
B)A company health plan.
C)A company's annual holiday bonus.
D)A company car.

Question 10

If the value of your baseball card collection increases during a year,it would count as income under which of the following definitions of income?

A)The Fisher definition of income.
B)The Haig-Simons definition of income.
C)The Laffer definition of income.
D)The imputed collectible return definition of income

Question 11

Income taxes tend to be favored over sales taxes _____.

A)because of the excess burden on income taxes
B)on the benefit principle
C)on equity grounds
D)as long as income as defined using the Haig-Simons definition

Question 12

Which of the following is a tax on consumption?

A)A comprehensive general sales tax.
B)A comprehensive value-added tax
C)An income tax in a world without saving.
D)All of the above.
E)a and b

Question 13

You are a government tax policy advisor.You are asked how to convert the U.S.income tax into a consumption tax.Which of the following is the best response?

A)It already is a consumption tax.
B)Flatten the brackets into one rate.
C)Exclude the first $25,000 of income.
D)Allow unlimited contributions into IRAs

Question 14

A comprehensive retail sales tax is equivalent to a tax on income when _____.

A)there is no deadweight loss from taxation
B)there is at least some investment in the economy
C)there is zero saving in the economy
D)the economy is at full employment

Question 15

A virtue of income taxes over sales taxes is that _____.

A)they are more comprehensive
B)they are more difficult to avoid
C)the excess burden of an income tax system is far smaller
D)progression can be built into the system

Question 16

Transforming the tax base of an income tax by subtracting savings has the advantage that _____.

A)a progressive rate structure can be applied to a consumption tax
B)all income can be taxed at a flat rate
C)it double taxes income
D)it guarantees progressivity

Question 17

The _____ of an income tax comes from the _____ effect.

A)excess burden;substitution
B)excess burden;income
C)excess benefits;substitution
D)excess benefits;income

Question 18

A general sales tax and a value-added tax have _____.

A)a common tax base
B)nothing in common
C)rates in common
D)investment as a tax base
E)a and d

Question 19

By providing in-kind benefits such as company cars,a company benefits because _____.

A)they can pay less for employees
B)their employees are late less frequently
C)employees are grateful
D)they are taxed as ordinary income not business expenses

Question 20

In a world with saving,making an income tax a consumption tax would require the tax base to be _____.

A)income
B)income minus savings
C)consumption plus investment
D)comprehensive

Question 21

If tax rates were 100 percent,tax revenues would be _____.

A)maximized
B)minimized
C)indeterminate
D)the same if they were 50 percent

Question 22

The percentage of additional income that will have to be paid in tax is an individual's _____.

A)marginal tax rate
B)average tax rate
C)proportional tax rate
D)flat tax rate

Question 23

When an income tax has a progressive rate structure,_____.

A)average tax rates are higher than marginal tax rates
B)marginal tax rates are higher than average tax rates
C)marginal tax rates are constant across all income ranges
D)average and marginal tax rates are equal across all income ranges

Question 24

The backward-bending supply curve of labor applies to _____.

A)individuals
B)groups
C)the economy as a whole
D)theoretical models

Question 25

The double taxation of saving creates a bias towards _____.

A)investment
B)consumption
C)luxury spending
D)the future

Question 26

The idea behind a flat tax is to _____.

A)cut taxes on high-income taxpayers
B)to raise taxes on high-income taxpayers
C)increase progressivity
D)minimize the excess burden of the income tax

Question 27

A sales tax is a type of consumption tax.

Question 28

The most significant form of revenue in developed countries is the income tax.

Question 29

It is easy to define income for tax purposes.

Question 30

Assuming that progressive taxation is desirable,a consumption tax calculated by subtracting saving from income would be preferable to a general sales-based consumption tax.

Question 31

IRA stands for Individual Retirement Asset.

Question 32

The excess burden of an income tax is a function of the _____.

A)average tax rate
B)flat tax rate
C)marginal tax rate
D)Laffer curve

Question 33

In the 1980s,marginal tax rates on high income taxpayers fell from 70 to 28 percent.Tax revenues coming from the top 1 percent of income earners _____.

A)fell as a percentage of income
B)fell in total,but not as a percentage of income taxes paid by all taxpayers
C)fell compared to middle-class taxpayers
D)increased as a percentage of income taxes paid by all taxpayers

Question 34

The Laffer Curve demonstrates that _____.

A)at some level of tax rates,tax revenues decline
B)there is no relationship between tax rates and tax revenue
C)there is no relationship between tax rates and labor supply
D)at some level of tax rates,labor supply declines

Question 35

The fact that unsheltered saving is taxed under our current tax system creates a double tax on saving because _____.

A)saving occurs out of after-tax income
B)of IRAs
C)investments earns such high rates of return
D)consumption should be equalized with saving

Question 36

The deadweight loss of taxation from an income tax is because of _____.

A)the inclusion of savings in the tax base
B)the Laffer curve
C)the income effect
D)the substitution effect

Question 37

The backward-bending supply curve for labor occurs because _____.

A)as wages increase,individuals pay higher taxes
B)as wages increase,individuals consume more leisure
C)as wages increases the number of hours worked increase
D)as wages increase,employers cannot afford as many hours

Question 38

If the backward-bending supply curve for labor has relevance for public finance,it is because _____.

A)at really high wage rates there will be insufficient labor to meet aggregate demand
B)there is a trade-off between leisure and labor
C)income taxes do no raise sufficient revenue to pay for public goods because individuals consume too much leisure
D)taxpayers are not receiving as much utility from public sector output as they are losing through the income effect associated with income taxes

Question 39

The only way that consumption can be taxed is through a general sales tax.

Question 40

Tax laws treat all in-kind payments as taxable income to the employers.

Question 41

Imputed rental income is considered taxable income to the homeowner under current tax law.

Question 42

Why does the double taxation of saving occur? Provide a numerical example of the double taxation of saving under a traditional income tax.

Question 43

The past two decades has seen a steady increase in the share of total taxes paid by high-income groups.

Question 44

Workers work for after-tax wages,thus an income tax represents a reduction in the effective wage rate.

Question 45

Define imputed rental income.Is imputed rental income taxed? Based on your answer,discuss the tax code treatment of homeowners and renters on equity grounds.

Question 46

Assume an income tax was doubled.Describe what would happen to labor supply and leisure.Can we be about the net effect on labor supply?

Question 47

What is the Haig-Simons definition of income? Are there any practical problems in implementing the Haig-Simons definition?

Question 48

The income effect associated with an income tax occurs because the individual has to work more to make up for the income paid in taxation.

Question 49

What does the Laffer curve illustrate? Draw a standard Laffer curve.

Question 50

There are no justifications for tax rates above the revenue-maximizing point.

Question 51

The Haig-Simons definition of income and the Fisher definition of income are virtually identical.

Question 52

What is the difference between marginal and average tax rates? Under what marginal and average tax rate conditions would an income tax be progressive?

Question 53

The revenue collected by an income tax is a function of the average tax rate.

Question 54

The Laffer Curve only applies to income taxes.