Question 1

High-income families pay a significantly greater percentage of their income in taxes compared to low-income families.

Accepted Answer

Low-income families often pay a higher percentage of their income in taxes when considering all types of taxes, including sales, property, and payroll taxes, not just income taxes.

Question 2

The effective tax rate refers to the actual taxes paid as a percentage of taxable income.

Accepted Answer

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Question 3

Loopholes,exemptions,and deductions cause an erosion of the tax base.

Accepted Answer

Loopholes, exemptions, and deductions reduce the amount of taxable income and therefore decrease the size of the tax base. This can lead to lower tax revenue for the government, which may have negative effects on public services and programs.

Question 4

Define vertical equity and horizontal equity.How do tax loopholes sometimes create vertical and horizontal inequity?

Accepted Answer

The answer of Define vertical equity and horizontal equity.How do...

Question 5

The principle of horizontal equity is violated if two people who earn the same amount of income actually pay a different amount in taxes.

Accepted Answer

Horizontal equity means that individuals with similar income should be taxed at similar rates. Therefore, if two people earn the same income but pay different amounts in taxes, it violates the principle of horizontal equity.

Question 6

The argument for greater equality of income distribution in the United States hinges on the idea that low-income earners would be more willing and able participants in the economy if income were distributed more equally.

Accepted Answer

The argument for greater income equality is that it would lead to increased economic participation by low-income earners, who would have more resources to invest and spend in the economy. This is based on the idea that a more equal distribution of income would reduce poverty and create a larger middle class, which would benefit the overall economy.

Question 7

A sales tax is a proportional tax.

Accepted Answer

A sales tax is considered a regressive tax because it takes a larger percentage of income from low-income earners than from high-income earners, as opposed to a proportional tax which takes the same percentage of income from all income groups.

Question 8

A major attraction of the flat tax is its simplicity.

Accepted Answer

The flat tax has only one tax rate and no deductions or exemptions, making it easier to understand and implement than a complex tax system with multiple rates and various deductions.

Question 9

The values of the Gini coefficient range from zero to +1.

Accepted Answer

This is because the Gini coefficient measures the level of income inequality, with zero representing perfect equality (when everyone has the same income) and +1 indicating perfect inequality (when one person has all the income).

Question 10

The greater the area between the Lorenz curve and the diagonal line of absolute equality,the more inequality exists.

Accepted Answer

The Lorenz curve measures income or wealth distribution in a society. The diagonal line of absolute equality represents perfect income or wealth equality, where every individual has the same income or wealth. Therefore, the greater the area between the Lorenz curve and the diagonal line, the more unequal the income or wealth distribution is in the society.

Question 11

Explain the following statement by Arthur Okun: "Insistence on carving the pie into equal slices would shrink the size of the pie.This fact poses the trade-off between economic equality and economic efficiency."

Accepted Answer

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Question 12

Why isn't the level of personal income always a good measure of the distribution of goods and services?

Accepted Answer

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Question 13

What is the difference between nominal and effective tax rates? What creates the distinction?

Accepted Answer

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Question 14

The tax incidence of a payroll tax results in an increase in net wages.

Accepted Answer

The tax incidence of a payroll tax falls on both the employer and the employee, resulting in a decrease in net wages for the employee.

Question 15

A person can have a great deal of wealth but have very little income.

Accepted Answer

Wealth refers to the total value of a person's assets, including property, investments, and savings. Income refers to the amount of money a person earns through their job or other sources on a regular basis. It is possible for someone to have accumulated a lot of wealth but have little income, especially if they are retired or have investments that do not generate much income.

Question 16

In making comparisons of personal income among countries,care must be exercised because in poor countries much of what is produced does not pass through markets and thus does not get counted in the nation's income.

Accepted Answer

This statement is true. In poor countries, a significant portion of economic activity may occur in the informal sector or through bartering, which are not always captured in official income statistics. Therefore, comparing income levels between countries based solely on official income statistics may not give an accurate picture of the actual level of economic activity and well-being in those countries.

Question 17

The nominal tax rate refers to the actual taxes paid as a percentage of taxable income.

Accepted Answer

The answer of The nominal tax rate refers to the...

Quiz 33: Taxes: Equity Versus Efficiency