Question 1

Owners of partnerships

Accepted Answer

Owners of partnerships report their firms' income directly on their individual income tax returns, rather than paying corporate profits tax.

Question 2

The payroll tax for income earners at top income levels in the United States is

Accepted Answer

The payroll tax for income earners at top income levels is regressive. This is because the tax is a fixed percentage on income up to a certain limit, and any income above that limit is not subject to the tax. Therefore, individuals with higher incomes pay a smaller percentage of their income in payroll taxes compared to individuals with lower incomes, making it regressive.

Question 3

Workers bear the bulk of the payroll tax when labor supply is very elastic.

Accepted Answer

When labor supply is very elastic, employers bear the bulk of the payroll tax because workers are more responsive to wage changes and can more easily leave jobs if their net pay decreases, forcing employers to absorb more of the tax burden to retain workers.

Question 4

Broad-based taxes are less likely to be shifted than partial taxes are.

Accepted Answer

Broad-based taxes, such as sales taxes or value-added taxes, are generally more difficult for businesses to shift onto consumers because they apply to a wide range of goods and services. In contrast, partial taxes, such as excise taxes on specific products, can be more easily absorbed or passed along to consumers in the form of higher prices.

Question 5

________ of the payroll tax if labor supply is perfectly elastic.

Accepted Answer

The answer of ________ of the payroll tax if labor...

Question 6

________ seem as a group to be mildly regressive and ________ seem as a group to be mildly progressive.

Accepted Answer

State and local taxes are typically based on income and property value, which means that higher earners and property owners pay more. This is considered progressive taxation as it aims to redistribute wealth. On the other hand, federal taxes are generally based on income alone and do not take property value into account, meaning that higher earners may not be paying their fair share. This is considered regressive taxation. Mildly regressive means that the effect is not significant, but there is still some regressive nature to the taxes.

Question 7

State and local taxes as a group seem to be mildly progressive, but federal taxes as a group seem to be mildly regressive.

Accepted Answer

Federal taxes are generally progressive, meaning that higher-income individuals pay a larger percentage of their income in taxes, while state and local taxes can often be regressive, meaning lower-income individuals pay a larger percentage of their income in taxes.

Question 8

The United States payroll tax is progressive.

Accepted Answer

The United States payroll tax, which funds Social Security and Medicare, is considered regressive because the tax is capped at a certain income level, meaning higher income earners pay a smaller percentage of their income in payroll taxes compared to lower income earners.

Question 9

Corporate taxes are levied on the profits of all firms.

Accepted Answer

Corporate taxes are levied on the profits of corporations specifically, not on all firms, as some firms like sole proprietorships and partnerships are taxed through personal income taxes of the owners.

Question 10

Empirical studies of labor supply behavior in the United States suggest that the elasticity of labor supply is ________ and therefore most of the payroll tax in the United States is borne by workers.

Accepted Answer

Empirical studies suggest that the elasticity of labor supply is close to zero, indicating that workers' response to changes in wages (due to taxes or otherwise) by changing the amount they work is minimal. Therefore, most of the payroll tax burden falls on the workers themselves, as they are unlikely to significantly alter their labor supply in response to the tax.

Question 11

Payroll taxes are ultimately borne entirely by workers.

Accepted Answer

Payroll taxes are split between employers and employees, and the economic burden can also affect wages and employment levels, meaning not all the burden falls solely on workers.

Question 12

Owners of proprietorships

Accepted Answer

Proprietorships are not separate legal entities from their owners. Therefore, the income earned by the business is considered to be the income of the owner(s) and must be reported on their individual income tax returns. Proprietorships are not subject to corporate profits tax as they are not corporations.

Question 13

Assume that both the corporate and noncorporate sectors are in long-run equilibrium before the imposition of a corporate profits tax. In the short run, the imposition of a corporate profits tax will ________ profits in the noncorporate sector, but ________ profits in the corporate sector.

Accepted Answer

In the short run, the imposition of a corporate profits tax will not change profits in the noncorporate sector because the tax directly affects only the corporate sector. However, it will decrease profits in the corporate sector because the tax reduces the after-tax income of corporations.

Question 14

In the long run, a reduction in the corporate profits tax will lead to ________ profits in the corporate sector and ________ profits in the noncorporate sector.

Accepted Answer

A reduction in the corporate profits tax decreases the tax burden on corporations, making it more attractive to invest in the corporate sector. This can lead to higher profits in the corporate sector as businesses potentially expand or invest more due to the lower tax rates. Additionally, as the corporate sector becomes more attractive for investment, resources might shift from the noncorporate to the corporate sector, potentially increasing profits in the noncorporate sector as well due to reduced competition or increased demand for services and goods provided by the noncorporate sector.

Question 15

A payroll tax is imposed on two types of labor: welders and machinists. In the short run, the elasticity of labor supply of welders is much more elastic than the elasticity of labor supply of machinists. Which of the following is true?

Accepted Answer

When the supply of labor is more elastic, workers can more easily leave the job for alternatives, reducing the burden of the tax they bear. Since welders have a more elastic labor supply, they can more easily avoid the tax, shifting the burden to machinists, who have a less elastic labor supply and thus bear a larger share of the payroll tax in the short run.

Question 16

In the long run, a reduction in the corporate profits tax may lead to ________ prices for the products of corporations and ________ prices for the products of partnerships and proprietorships.

Accepted Answer

A reduction in the corporate profits tax would lead to lower prices for the products of corporations as they would have more profits to invest in lowering their prices. On the other hand, partnerships and proprietorships would not benefit from the reduction in the corporate profits tax, so their prices would remain higher. Therefore, option D is the correct answer.

Question 17

In the long run, an increase in the individual income tax rate with no change in the corporate profits tax may lead to ________ prices for the products of corporations and ________ prices for the products of partnerships and proprietorships.

Accepted Answer

The answer of In the long run, an increase in...

Question 18

Since the demand for gasoline is relatively inelastic, a gas tax is largely borne by consumers.

Accepted Answer

The demand for gasoline is relatively inelastic, meaning that consumers are relatively unresponsive to changes in price. Therefore, when a gas tax is imposed, the price of gasoline increases and consumers are forced to pay a higher price, as they are not easily able to switch to alternative modes of transportation or reduce their usage of gasoline. As a result, the burden of the tax is largely borne by consumers rather than gasoline producers or retailers.

Question 19

In the long run, an increase in the individual income tax rate with no change in the corporate profits tax will lead to ________ profits in the corporate sector and ________ profits in the noncorporate sector.

Accepted Answer

The answer of In the long run, an increase in...

Question 20

The payroll tax for income earners at low income levels in the United States is

Accepted Answer

The answer of The payroll tax for income earners at...

Quiz 19: Public Finance: The Economics of Taxation