Deck 1: An Introduction to Tax

Question 1

Taxes influence business decisions such as where a business should locate or how a business should be structured.

Answer 1

True

Question 2

A taxpayer's average tax rate is the most appropriate tax rate to use in tax planning.

Answer 2

False
Explanation: The marginal tax rate is particularly useful in tax planning because it represents the rate of taxation or savings that would apply to additional taxable income or additional tax deductions.

Question 3

The main difficulty in calculating an income tax is determining the correct amount of the tax base.

Answer 3

True

Question 4

The effective tax rate, in general, provides a better depiction of a taxpayer's tax burden than the average tax rate.

Question 5

Margaret recently received a parking ticket. This is a common example of a local tax.

Question 6

The two components of the tax calculation are the tax rate and the taxpayer's status.

Question 7

The effective tax rate expresses the taxpayer's total tax as a percentage of the taxpayer's taxable and nontaxable income.

Question 8

One key characteristic of a tax is that it is a required payment to a governmental agency.

Question 9

In a proportional (flat) tax rate system, the marginal tax rate will always equal the average tax rate.

Question 10

Taxes influence many types of business decisions but generally do not influence personal decisions.

Question 11

One benefit of a sin tax (e.g., a tax on cigarettes) is that it should increase the demand for the products being taxed.

Question 12

In a regressive tax rate system, the marginal tax rate will often be greater than the average tax rate.

Question 13

Common examples of sin taxes include the taxes imposed on airline tickets and gasoline.

Question 14

The tax base for the federal income tax is taxable income.

Question 15

George recently paid $50 to renew his driver's license. The $50 payment is considered a tax.

Question 16

A 1% charge imposed by a local government on football tickets sold is not considered a tax if all proceeds are earmarked to fund local schools.

Question 17

A sales tax is a common example of a progressive tax rate structure.

Question 18

A flat tax is an example of a graduated tax system.

Question 19

Tax policy rarely plays an important part in presidential campaigns.

Question 20

In addition to raising revenues, specific U.S. taxes may have other objectives (e.g., economic or social objectives).

Question 21

Taxes influence which of the following decisions?

A) business decisions
B) personal decisions
C) political decisions
D) investment decisions
E) all of these

Question 22

A use tax is typically imposed by a state on goods purchased within the state.

Question 23

Self-employment taxes are charged on self-employment income in addition to any federal income tax.

Question 24

The estate tax is assessed based on the fair market values of transfers made during a taxpayer's life.

Question 25

Relative to explicit taxes, implicit taxes are much easier to estimate.

Question 26

Regressive tax rate structures are typically considered to be vertically equitable.

Question 27

The largest federal tax, in terms of revenue collected, is the social security tax.

Question 28

The 9^th Amendment to the U.S. Constitution removed all doubt that a federal income tax was allowed under the U.S. Constitution.

Question 29

Dynamic forecasting does not take into consideration taxpayers' responses to a tax change when estimating tax revenues.

Question 30

A common example of an employment related tax is the Medicare tax.

Question 31

The income and substitution effects are two opposing effects that one could consider in static forecasting.

Question 32

Margaret was issued a $150 speeding ticket. This is:

A) A tax because payment is required by law
B) A tax because the payment is not related to any specific benefit received from the government agency collecting the ticket
C) Not a tax because it is considered a fine intended to punish illegal behavior
D) A tax because it is imposed by a government agency
E) Not a tax because Margaret could have avoided payment if she did not speed

Question 33

Estimated tax payments are one way the federal income tax system addresses the "certainty" criterion in evaluating tax systems.

Question 34

In considering the "economy" criterion in evaluating tax systems, one must consider this criterion from both the taxpayer and the government's perspective.

Question 35

In terms of effective tax rates, the sales tax can be viewed as a regressive tax.

Question 36

Excise taxes are typically levied on the value of a good purchased.

Question 37

Horizontal equity is defined in terms of taxpayers in similar situations whereas vertical equity is defined in terms of taxpayers in different situations.

Question 38

Implicit taxes are indirect taxes on tax-favored assets.

Question 39

While sales taxes are quite common, currently the U.S. federal government does not impose a sales tax.

Question 40

Property taxes may be imposed on both real and personal property.

Question 41

Which of the following is true regarding use taxes?

A) A use tax is relatively easy to enforce compared to a sales tax.
B) Use taxes attempt to eliminate any tax advantage of purchasing goods out of state.
C) Use taxes encourage taxpayers to buy goods out of state to avoid paying sales tax in their home state.
D) A use tax is generally a progressive tax.
E) None of these is true.

Question 42

Which of the following represents the largest percentage of average state tax revenue?

A) Sales tax
B) Individual income tax
C) Other
D) Property tax
E) None of these

Question 43

Which of the following taxes represents the largest portion of U.S. Federal Tax revenues?

A) Employment taxes
B) Corporate income taxes
C) Individual income taxes
D) Estate and gift taxes
E) None of these

Question 44

The ultimate economic burden of a tax is best captured by:

A) The marginal tax rate
B) The effective tax rate
C) The average tax rate
D) The proportional tax rate
E) None of these is correct

Question 45

Which of the following is false?

A) A proportional tax rate structure imposes a constant tax rate while a progressive tax rate structure imposes an increasing marginal rate related to the tax base
B) The average tax rate changes under a proportional tax rate structure, but it is static for a progressive tax rate system
C) An example of a proportional tax is the tax on gasoline
D) An example of a progressive tax is the federal tax on gifts
E) None of these

Question 46

Which of the following is true?

A) A regressive tax rate structure imposes an increasing marginal tax rate as the tax base increases
B) Regressive tax structures are the most common tax rate structure
C) An example of a regressive tax is an excise tax
D) In terms of effective tax rates, a sales tax can be viewed as a regressive tax
E) None of these

Question 47

The difficulty in calculating a tax is typically in the determination of:

A) The correct tax rate
B) Where to file the tax return
C) The tax base
D) The due date for the return
E) None of these

Question 48

Which of the following is not one of the basic tax rate structures?

A) Proportional
B) Equitable
C) Regressive
D) Progressive
E) All of these are different kinds of the basic tax rate structures

Question 49

Which of the following is a tax? I. A 1% special sales tax for funding local road construction.
II) A fee paid to the state for a license to practice as an attorney.
III) An income tax imposed by Philadelphia on persons working within the city limits.
IV) A special property assessment for installing a new water system in the taxpayer's neighborhood.

A) Only I is correct.
B) Only IV is correct.
C) Only III is correct.
D) III and IV are correct.
E) I and III are correct.

Question 50

Which of the following is considered a tax?

A) Tolls
B) Parking meter fees
C) Annual licensing fees
D) A local surcharge paid on retail sales to fund public schools
E) Entrance fees paid at national parks

Question 51

Marc, a single taxpayer, earns $60,000 in taxable income and $5,000 in interest from an investment in city of Birmingham Bonds. Using the U.S. tax rate schedule for year 2016, what is his current marginal tax rate?

A) 15.00%
B) 25.00%
C) 28.00%
D) 33.00%
E) None of these

Question 52

Sin taxes are:

A) Taxes assessed by religious organizations
B) Taxes assessed on certain illegal acts
C) Taxes assessed to discourage less desirable behavior
D) Taxes assessed to fund a specific purpose
E) None of these

Question 53

To calculate a tax, you need to know: I. the tax base
II) the taxing agency
III) the tax rate
IV) the purpose of the tax

A) Only I is correct
B) Only IV is correct
C) Only III is correct
D) Items I through IV are correct
E) I and III are correct

Question 54

The state of Georgia recently increased its tax on a carton of cigarettes by $2.00. What type of tax is this?

A) A sin tax
B) An excise tax
C) It is not a tax; it is a fine
D) A sin tax and An excise tax are correct
E) None of these is correct

Question 55

Earmarked taxes are:

A) Taxes assessed only on certain taxpayers
B) Taxes assessed to fund a specific purpose
C) Taxes assessed for only a specific time period
D) Taxes assessed to discourage less desirable behavior
E) None of these

Question 56

Marc, a single taxpayer, earns $60,000 in taxable income and $5,000 in interest from an investment in city of Birmingham Bonds. Using the U.S. tax rate schedule for year 2016, what is his average tax rate (rounded)?

A) 17.95%
B) 15.00%
C) 18.49%
D) 25.00%
E) None of these

Question 57

Which of the following is not an example of a graduated tax rate structure?

A) Progressive tax rate structure
B) Proportional tax rate structure
C) U.S. Federal Income Tax
D) Regressive tax rate structure
E) None of these

Question 58

Marc, a single taxpayer, earns $60,000 in taxable income and $5,000 in interest from an investment in city of Birmingham Bonds. Using the U.S. tax rate schedule for year 2016, how much federal tax will he owe?

A) $15,000.00
B) $12,021.25
C) $10,771.25
D) $8,072.50
E) None of these

Question 59

Marc, a single taxpayer, earns $60,000 in taxable income and $5,000 in interest from an investment in city of Birmingham Bonds. Using the U.S. tax rate schedule for year 2016, what is his effective tax rate (rounded)?

A) 18.49%
B) 16.57%
C) 12.41%
D) 25.00%
E) None of these

Question 60

The city of Granby, Colorado recently enacted a 1.5% surcharge on vacation cabin rentals that will help pay for the city's new elementary school. This surcharge is an example of ________.

A) a sin tax to discourage undesirable behavior
B) a government fine
C) an earmarked tax
D) a sin tax to discourage undesirable behavior and An earmarked tax
E) None of these

Question 61

Leonardo, who is married but files separately, earns $80,000 of taxable income. He also has $15,000 in city of Tulsa bonds. His wife, Theresa, earns $50,000 of taxable income. If Leonardo earned an additional $30,000 of taxable income this year, what would be the marginal tax rate (rounded) on the extra income for year 2016?

A) 27.75%
B) 17.50%
C) 25.00%
D) 28.00%
E) None of these

Question 62

Employers often withhold federal income taxes directly from worker's paychecks. This is an example of which principle in practice?

A) Convenience
B) Certainty
C) Economy
D) Equity
E) None of these

Question 63

Which of the following is true regarding tax-advantaged assets?

A) They are typically subject to excise taxes to account for their low explicit taxes
B) A corporate bond is typically considered a tax-advantaged asset
C) They are often subject to implicit taxes
D) A corporate bond is typically considered a tax-advantaged asset and They are often subject to implicit taxes are correct but not They are typically subject to excise taxes to account for their low explicit taxes
E) None of these

Question 64

Which of the following statements is true?

A) Municipal bond interest is subject to explicit federal tax
B) Municipal bond interest is subject to implicit tax
C) Municipal bonds typically pay a higher interest rate than corporate bonds with similar risk
D) All of these statements are true
E) None of these statements is true

Question 65

Congress recently approved a new, bigger budget for the IRS. What taxation concept evaluates the cost of administering our tax law?

A) Convenience
B) Economy
C) Certainty
D) Equity
E) None of these

Question 66

Al believes that SUVs have negative social and environmental effects because of their increased carbon monoxide emissions. He proposes eliminating sales taxes on smaller automobiles in favor of higher sales taxes levied on SUVs. Al performs some calculations and comes to the conclusion that based on the current number of SUVs owned in the U.S. exactly the same amount of total sales tax will be collected under his reformed system. Which of the following concepts explains why Al's idea may not work?

A) The ability to pay principle
B) Horizontal equity
C) Substitution effect
D) Vertical equity
E) None of these

Question 67

Geronimo files his tax return as a head of household for year 2016. If his taxable income is $72,000, what is his average tax rate (rounded)?

A) 17.08%
B) 18.24%
C) 19.13%
D) 25.00%
E) None of these

Question 68

Leonardo, who is married but files separately, earns $80,000 of taxable income. He also has $15,000 in city of Tulsa bonds. His wife, Theresa, earns $50,000 of taxable income. If Leonardo instead had $30,000 of additional tax deductions for year 2016, his marginal tax rate (rounded) on the deductions would be:

A) 28.00%
B) 25.00%
C) 25.41%
D) 16.56%
E) None of these

Question 69

Manny, a single taxpayer, earns $65,000 per year in taxable income and an additional $12,000 per year in city of Boston bonds. What is Manny's current marginal tax rate for year 2016?

A) 18.49%
B) 28.00%
C) 15.61%
D) 22.86%
E) None of these

Question 70

Manny, a single taxpayer, earns $65,000 per year in taxable income and an additional $12,000 per year in city of Boston bonds. If Manny earns an additional $35,000 in taxable income in year 2016, what is his marginal tax rate (rounded) on this income?

A) 22.06%
B) 28.00%
C) 25.76%
D) 25.00%
E) None of these

Question 71

Which of the following is true regarding real property taxes and personal property taxes?

A) Personal property taxes are assessed on permanent structures and land
B) Real property taxes are assessed on cars and boats
C) All U.S. states currently impose personal property taxes
D) Real property taxes are generally easier to administer than personal property taxes
E) None of these is true

Question 72

Which of the following federal government actions would make sense if a tax system fails to provide sufficient tax revenue?

A) Only issue treasury bonds
B) Only cut funding to various federal projects
C) Only increase federal spending
D) Issue treasury bonds and cut funding to various federal projects but not increase federal spending
E) None of these

Question 73

Which of the following principles encourages a vertically equitable tax system?

A) Pay as you go
B) Economy
C) Income effects
D) Ability to pay principle
E) None of these

Question 74

The concept of tax sufficiency:

A) Suggests the need for tax forecasting
B) Suggests that a government should estimate how taxpayers will respond to changes in the current tax structure
C) Suggests that a government should consider the income and substitution effects when changing tax rates
D) All of these
E) None of these

Question 75

Leonardo earns $80,000 of taxable income. He also has $15,000 in city of Tulsa bonds. His wife, Theresa, earns $50,000 of taxable income. How much money would Leonardo and Theresa save if they file jointly instead of separately for year 2016?

A) Nothing
B) $121.50
C) $309.75
D) $5,927.50
E) None of these

Question 76

Leonardo earns $80,000 of taxable income. He also has $15,000 in city of Tulsa bonds. His wife, Theresa, earns $50,000 of taxable income. If Susie earns $750,000 in taxable income, how much tax will she pay as a single taxpayer for year 2016?

A) $242.666.30
B) $252,500.00
C) $253,169.95
D) $269,833.15
E) None of these

Question 77

Which of the following would not be a failure of the horizontal equity concept?

A) Two taxpayers with identical income pay different amounts of tax because one taxpayer's income includes tax exempt interest.
B) Two taxpayers pay different amounts of property tax amounts on similar plots of land (i.e., same value) because one plot of land is used to raise crops.
C) Two taxpayers pay different amounts of estate tax because one taxpayer's estate is worth significantly more.
D) All of these.
E) None of these.

Question 78

Leonardo earns $80,000 of taxable income. He also has $15,000 in city of Tulsa bonds. His wife, Theresa, earns $50,000 of taxable income. If Leonardo and his wife file married filing jointly in 2016, what would be their average tax rate (rounded)?

A) 15.00%
B) 25.00%
C) 18.49%
D) 23.54%
E) None of these

Question 79

Leonardo earns $80,000 of taxable income. He also has $15,000 in city of Tulsa bonds. His wife, Theresa, earns $50,000 of taxable income. What is Leonardo and Theresa's effective tax rate for year 2016 (rounded)?

A) 15.00%
B) 18.53%
C) 21.11%
D) 28.00%
E) None of these

Question 80

The substitution effect:

A) Predicts that taxpayers will work harder to pay for consumer products when tax rates increase
B) Is one of the effects considered in static forecasting
C) Results in the government collecting more aggregate tax revenue than under the income effect
D) Is typically more descriptive for taxpayers with lower disposable income
E) None of these