Question 1

Tax systems with regressive rate structures result in a proportionally heavier tax burden on persons with smaller tax bases.

Accepted Answer

In regressive tax systems, the tax rate decreases as the taxable base increases. This means that people with smaller tax bases end up paying a larger proportion of their income in taxes, resulting in a heavier tax burden.

Question 2

The declining marginal utility of income across individuals can be measured empirically.

Accepted Answer

The answer of The declining marginal utility of income across...

Question 3

A progressive rate structure and a proportionate rate structure both result in vertical equity across taxpayers.

Accepted Answer

Both progressive and proportionate rate structures strive for vertical equity, which means those who have a greater ability to pay in taxes should pay more. In a progressive rate structure, tax rates increase as income increases, while in a proportionate rate structure, the same tax rate applies to all individuals regardless of income.

Question 4

Which of the following statements concerning the federal Social Security tax is true?

Accepted Answer

The Social Security tax burden increases annually because the base generally increases annually. The rate, on the other hand, has remained at 6.2% for employees and employers since 1990, with a small increase to 6.2% for self-employed individuals in 1994. However, the taxable wage base, or the maximum amount of earnings subject to the tax, has increased steadily each year. For 2021, it is $142,800, up from $137,700 in 2020. This means that individuals earning more than the taxable wage base will see an increase in their Social Security tax burden each year.

Question 5

A static forecast of the incremental revenue from a tax rate increase presumes that:

Accepted Answer

A static forecast assumes that the tax base (the amount of taxable activity subject to the tax) will remain the same even after the tax rate is increased. It is an assumption that there will be no behavioral changes in response to the tax rate change. Therefore, the correct answer is A.

Question 6

Tax liability divided by taxable income equals marginal tax rate.

Accepted Answer

Tax liability divided by taxable income equals the average tax rate, not the marginal tax rate. The marginal tax rate is the rate at which your last dollar of income is taxed.

Question 7

Jurisdiction F levies a 10% excise tax on the purchase of golf carts.The annual revenue from this tax averages $800,000 (10% * $8 million average annual golf cart purchases).Jurisdiction F is considering raising the tax rate to 12%.Which of the following statements is true?

Accepted Answer

A static forecast assumes that the quantity of golf carts purchased remains constant, so a 2% increase in the tax rate would increase revenue by $160,000 (2% of $8 million).

Question 8

Individuals who believe that a tax system is fair are less likely to cheat on their taxes than individuals who believe that the system is unfair.

Accepted Answer

Individuals who believe that the tax system is fair are more likely to comply with tax laws because they perceive that their tax burden is reasonable and that everyone is contributing their fair share. On the other hand, individuals who perceive the tax system as unfair may not feel compelled to comply with the tax laws and may cheat on their taxes as a form of protest or to reduce their tax burden. Therefore, a fair tax system is essential to promote tax compliance and reduce tax evasion.

Question 9

A dynamic forecast of the incremental revenue from a tax rate increase presumes that:

Accepted Answer

A dynamic forecast of the incremental revenue from a tax rate increase takes into account that taxpayers may change their behavior due to the rate increase, which can affect the tax base. This implies a correlation between the tax rate and the tax base, as changes in the tax rate can lead to changes in the tax base, contrary to static forecasting which assumes no behavioral changes.

Question 10

If a tax has a proportionate rate structure,a taxpayer's marginal rate and average rate are equal.

Accepted Answer

In a proportionate rate structure, the tax rate remains constant regardless of the taxpayer's income level. Therefore, the marginal rate (the tax rate applied to the last dollar of income earned) and the average rate (total tax paid divided by total income) are equal.

Question 11

Government officials of Country Z estimate that next year's public programs will cost $19 million but that tax revenues will be only $15 million.Which of the following statements is false?

Accepted Answer

The statement "Country Z's tax system is sufficient" is false because the tax revenues are not enough to cover the cost of public programs. The government is engaging in deficit spending because they will have to borrow $4 million to cover the shortfall. Choice C is true because if Country Z borrows $4 million, their national debt will increase by $4 million. Choice D is also true because eliminating a program that costs $4 million would allow the government to balance their budget.

Question 12

The theory of distributional justice is a rationale for a progressive income tax system.

Accepted Answer

Distributional justice is the idea that resources and wealth should be distributed in a fair and equal manner. A progressive income tax system is one that taxes individuals with higher incomes at a higher rate than those with lower incomes, which is seen as a way to promote distributional justice. Therefore, the theory of distributional justice supports the use of a progressive income tax system.

Question 13

Government officials of Country Z estimate that next year's public programs will cost $19 million but that tax revenues will be only $15 million.The officials could avoid a deficit next year by adopting which of the following fiscal strategies?

Accepted Answer

Reducing costs by $4 million, increasing taxes by $4 million, or borrowing $4 million would each individually cover the $4 million shortfall, thus avoiding a deficit.

Question 14

Many taxpayers believe the income tax system is unfair because it is so complicated.

Accepted Answer

Many taxpayers perceive the income tax system as unfair due to its complexity, which can lead to confusion and a sense of inequity in how taxes are assessed and collected.

Question 15

If a tax has a progressive rate structure,a taxpayer's average rate is greater than her marginal rate.

Accepted Answer

In a progressive tax system, a taxpayer's marginal rate (the rate on the last dollar of income) is higher than the average rate (total tax paid divided by total income), because as income increases, the tax rate on additional income also increases.

Question 16

Last year,Government G levied a 35% tax on individual income,and Mr.Slate paid $35,000 tax on his $100,000 income.This year,the government increased the tax rate to 40%.Which of the following statements is false?

Accepted Answer

The answer of Last year,Government G levied a 35% tax...

Question 17

The government of Nation C operated at a $32 billion deficit this year.The deficit suggests that Nation C's tax system is:

Accepted Answer

A deficit means that the government's spending exceeded its tax revenue. This suggests that the tax system is insufficient and not generating enough revenue to cover the government's expenses.

Question 18

The U.S.individual income tax has always used a progressive rate structure.

Accepted Answer

The U.S. individual income tax has always used a progressive rate structure, meaning that the tax rate increases as the taxpayer's income increases. This system was first implemented in 1913 with the passage of the 16th Amendment to the Constitution.

Question 19

Government J decides that it must increase its tax revenue.Which of the strategies could result in more revenue?

Accepted Answer

All of these strategies could result in more revenue for Government J. Increasing the rate of an existing tax would directly increase the amount of revenue collected from that tax. Expanding the base of an existing tax would involve including more goods or services within the scope of the tax, resulting in more revenue. Enacting a tax on a new base would create an entirely new revenue stream for the government. Therefore, all of these strategies could be used by Government J to increase its tax revenue.

Question 20

The city of Belleview operated at an $865,000 surplus this year.The surplus suggests that the municipal tax system is:

Accepted Answer

A surplus indicates that the city has collected more revenue than it has spent, which suggests that the current tax system is sufficient to meet the city's needs. It does not necessarily indicate whether the tax system is fair, efficient, or convenient.

Quiz 2: Policy Standards for a Good Tax