Question 1

The marginal tax rate is the tax rate paid on an:

Accepted Answer

The marginal tax rate is the tax rate paid on an additional dollar of income earned. It is the tax rate applied to the last dollar earned, and is often higher than the average tax rate.

Question 2

Is the marginal income tax rate or the average income tax rate higher for a typical person in the United States?

Accepted Answer

The marginal income tax rate is the rate at which the last dollar of income is taxed, while the average income tax rate is the total amount of taxes paid divided by total income earned. Since the United States has a progressive income tax system, with higher rates applied to higher levels of income, the marginal income tax rate is always higher than the average income tax rate for a typical person.

Question 3

Which of the following reduces taxable income?

Accepted Answer

Both deductions and exemptions can reduce taxable income. Deductions are expenses that can be subtracted from taxable income, while exemptions reduce the amount of income subject to tax. Therefore, the best choice is C, as it includes both options.

Question 4

At income levels above the limit for the lowest tax bracket, the average tax rate is:

Accepted Answer

The average tax rate is calculated by dividing total taxes paid by taxable income, while the marginal tax rate is the rate at which the next dollar of income will be taxed. As income rises, the marginal tax rate will be higher than the average tax rate. Therefore, at income levels above the limit for the lowest tax bracket, the average tax rate will always be lower than the marginal tax rate.

Question 5

Total tax payments divided by total income is called the:

Accepted Answer

The average tax rate is calculated by dividing total tax payments by total income and it represents the percentage of total income that goes towards taxes.

Question 6

A country has two income tax brackets: people pay 10% on their first $50,000 and 20% on everything they earn over $50,000. If someone earns $75,000, how much tax does that person pay?

Accepted Answer

The answer of A country has two income tax brackets:...

Question 7

The tax rate paid on an additional dollar of income is called the:

Accepted Answer

The marginal tax rate is the tax rate paid on an additional dollar of income, which is the most relevant to decision-making when considering taking on additional income or making financial decisions that affect taxable income. The average tax rate is the total tax paid divided by total income, and the total tax rate refers to the overall percentage of income paid in taxes. Last tax rate is not a commonly used term in taxation.

Question 8

The average tax rate is:

Accepted Answer

The average tax rate is calculated by dividing total tax payment by total income.

Question 9

A country has two income tax brackets: people pay 10% on their first $50,000 and 20% on everything they earn over $50,000. If someone earns $75,000, what is that person's marginal tax rate?

Accepted Answer

The marginal tax rate refers to the percentage of tax that is paid on the last dollar earned. In this case, the person's income of $75,000 falls into both tax brackets, with the first $50,000 taxed at 10% and the remaining $25,000 taxed at 20%. Therefore, the marginal tax rate is 20%.

Question 10

Currently, marginal tax rates are:

Accepted Answer

Marginal tax rates are currently lower than in the past. In the United States, significant marginal tax rate cuts were implemented in the 1980s and 2000s, resulting in lower rates overall. However, it is worth noting that effective tax rates (the actual percentage of income paid in taxes) may differ from marginal rates.

Question 11

If your income is $65,000, with income up to $17,000 subject to a 10% tax rate and income above $17,000 subject to 15% tax rate, then your average tax rate is:

Accepted Answer

The answer of If your income is $65,000, with income...

Question 12

The income tax exemption for each individual in 2014 is:

Accepted Answer

The income tax exemption for each individual in 2014 was $3,950. This means that the first $3,950 of an individual's income is not subject to federal income tax.

Question 13

The tax deduction for interest paid on home mortgages tends to:

Accepted Answer

The tax deduction for interest paid on home mortgages increases the demand for homes, which can lead to higher house prices. When the government subsidizes a certain activity, such as buying a home through the tax deduction, people tend to do more of it, thus increasing demand and driving up prices.

Question 14

The most important tax for determining an individual's incentive to work is:

Accepted Answer

The marginal tax rate is the tax rate applied to an additional dollar of income, meaning it directly affects the individual's incentive to work and earn more income. The other tax rates may also have an impact, but the marginal tax rate is the most important in this regard.

Question 15

If your marginal tax rate is 25% and you can exempt $3,650 of your income for each member of your family (yourself, your spouse, and your one child), then the exemption means you will save _____ in taxes.

Accepted Answer

The answer of If your marginal tax rate is 25%...

Question 16

A country has two income tax brackets: people pay 10% on their first $50,000 and 20% on everything they earn over $50,000. It also has a personal exemption of $5,000. Who benefits more from the personal exemption, a person making $35,000 or a person making $75,000?

Accepted Answer

The answer of A country has two income tax brackets:...

Question 17

A country has two income tax brackets: people pay 10% on their first $50,000 and 20% on everything they earn over $50,000. If someone earns $75,000, what is that person's average tax rate?

Accepted Answer

The person earned $75,000, which means they fall into both tax brackets. They pay 10% on the first $50,000 which is $5000. Then, they pay 20% on the remaining $25,000 which is $5000. Total tax paid is $10000.
The average tax rate is (tax paid / income earned) * 100% = (10000 / 75000) * 100% = 13.3%. 
Therefore, the answer is B.

Question 18

If tax rates are 10% on income up to $10,000, 20% for income between $10,001 and $20,000, and 30% for income over $20,000, the total tax payment for a person earning $25,000 is approximately:

Accepted Answer

The total tax payment can be calculated as follows: 10% on the first $10,000 = $1,000, 20% on the next $10,000 ($10,001 to $20,000) = $2,000, and 30% on the remaining $5,000 ($20,001 to $25,000) = $1,500. Adding these amounts together gives a total tax payment of $4,500.

Question 19

If tax rates are 10% on income up to $10,000, 20% for income between $10,001 and $20,000, and 30% for income over $20,000, the marginal tax rate for a person earning $25,000 is:

Accepted Answer

The marginal tax rate is the rate applied to the last dollar earned. In this case, the first $10,000 will be taxed at 10%, the next $10,000 (up to $20,000) will be taxed at 20%, and the remaining $5,000 of income (over $20,000) will be taxed at 30%. Therefore, the marginal tax rate for a person earning $25,000 is 30%.

Question 20

If tax rates are 10% on income up to $10,000, 20% for income between $10,001 and $20,000, and 30% for income over $20,000, the average tax rate for a person earning $25,000 is:

Accepted Answer

The average tax rate is calculated by dividing the total tax paid by the total income. For an income of $25,000: - The first $10,000 is taxed at 10%, which is $1,000. - The next $10,000 (from $10,001 to $20,000) is taxed at 20%, which is $2,000. - The remaining $5,000 (from $20,001 to $25,000) is taxed at 30%, which is $1,500. The total tax paid is $1,000 + $2,000 + $1,500 = $4,500. The average tax rate is $4,500 / $25,000 = 0.18, or 18%.

Quiz 17: The Federal Budget: Taxes and Spending