Question 1

Which of the following can be classified as a regressive tax?

Accepted Answer

A regressive tax is one where the tax rate decreases as the taxable amount increases. The federal gasoline tax is considered regressive because it takes a larger percentage of income from low-income earners than from high-income earners, as everyone pays the same tax rate regardless of income.

Question 2

Suppose George's income is $10,000 and he pays a tax of $1,000, but Laura's income is $50,000 and she pays a tax of $4,000. Such a tax is:

Accepted Answer

A regressive tax system imposes a lower tax rate on individuals who earn higher incomes. In this scenario, George pays 10% of his income ($1,000/$10,000), while Laura pays 8% of her income ($4,000/$50,000), indicating that as income increases, the tax rate decreases, which is characteristic of a regressive tax system.

Question 3

At the federal level, the single most important tax, accounting for slightly less than half of revenue, is the:

Accepted Answer

The personal income tax accounts for slightly less than half of federal revenue, making it the single most important tax at the federal level. The corporate income tax, estate tax, property tax, and sales tax all contribute to federal revenue, but to a lesser extent than the personal income tax.

Question 4

The social security tax is a:

Accepted Answer

The social security tax is considered regressive above a certain income level because it is only applied up to a wage base limit, meaning higher income earners pay a smaller percentage of their total income compared to lower income earners.

Question 5

The primary source of revenue at the federal level is:

Accepted Answer

The primary source of revenue at the federal level is the personal income tax. According to data from the Office of Management and Budget, in 2019, personal income taxes accounted for 50% of total federal revenue, while corporate income taxes accounted for only 7% and customs duties accounted for 1%. Property taxes and sales taxes are primarily collected by state and local governments.

Question 6

"It would be an undue hardship to require people whose income is below $15,000 per year to pay income taxes." This statement reflects which of the following principles for a tax?

Accepted Answer

The principle of ability to pay asserts that those who have more financial resources should pay a higher share of taxes. Therefore, it would be considered an undue hardship to require individuals with very low incomes to pay income taxes as they do not have the ability to pay.

Question 7

Which of the following is a regressive tax?

Accepted Answer

A regressive tax is one where the tax rate decreases as the income of the taxpayer increases. A local sales tax is an example of a regressive tax because it is a flat rate that applies to all purchases, regardless of the income of the buyer. Lower-income individuals will therefore pay a larger percentage of their income in sales taxes compared to higher-income individuals. The other options listed either have a progressive structure (A, C) or a flat rate that does not change based on income (D).

Question 8

Which of the following is an example of a progressive tax?

Accepted Answer

The federal personal income tax is a progressive tax because the tax rate increases as the taxpayer's income increases.

Question 9

A tax where the percentage of income paid in taxes is the same regardless of the size of the income is a:

Accepted Answer

A proportional tax, also known as a flat tax, is where everyone pays the same percentage of their income in taxes, regardless of the size of their income. This is different from a progressive tax, where tax rates increase as income increases, and a regressive tax, where taxes take a larger percentage of income from those with lower incomes.

Question 10

Which of the following answers best reflects the ability-to-pay philosophy of taxation?

Accepted Answer

The ability-to-pay philosophy of taxation is based on the principle that individuals should be taxed based on their ability to pay taxes. A progressive income tax system is designed to tax individuals at higher rates as their income increases. This aligns with the ability-to-pay philosophy as those with higher incomes have a greater ability to pay taxes.

Question 11

Generally, most economists feel that a sales tax is:

Accepted Answer

Most economists feel that a sales tax is regressive because it disproportionately affects low-income individuals, who spend a higher percentage of their income on taxable goods compared to higher-income individuals.

Question 12

Suppose fairness is defined as those who receive the greatest benefits from government should pay the most in taxes, then which of the following taxation systems would be consistent with this notion of fairness?

Accepted Answer

The answer of Suppose fairness is defined as those who...

Question 13

The benefits-received principle of taxation is most evident in:

Accepted Answer

The benefits-received principle of taxation states that individuals should pay taxes based on the benefits they receive from government services. Excise taxes on gasoline fit this principle because those who use gasoline and other petroleum products benefit from the transportation infrastructure that is supported by those taxes.

Question 14

Sharon pays a tax of $4,000 on her income of $40,000, while Brad pays a tax of $1,000 on his income of $20,000. This tax is:

Accepted Answer

The answer of Sharon pays a tax of $4,000 on...

Question 15

A tax is regressive if it collects a:

Accepted Answer

A regressive tax means that lower income individuals pay a higher percentage of their income in taxes than higher income individuals. Option D is the correct choice because it taxes a smaller fraction of income as income rises, which means that higher income individuals are paying a smaller percentage of their income in taxes compared to lower income individuals.

Question 16

A tax that is structured so that people pay the same percentage of their income in taxes is called a(n):

Accepted Answer

A flat tax is structured so that everyone pays the same percentage of their income in taxes. This means that regardless of income level, everyone pays the same rate. It is different from a progressive tax, which taxes higher-income individuals at a higher rate, and a regressive tax, which taxes lower-income individuals at a higher rate. Flat taxes are often seen as simpler and fairer, but they can also disproportionately impact low-income individuals who may struggle to pay even a small percentage of their income in taxes.

Question 17

"He who pays a tax should receive the benefit from the expenditure financed by the tax." This statement reflects which of the following principles for a tax?

Accepted Answer

The principle of benefits-received states that those who benefit from a government service or program should pay for it through taxation. This statement reflects that principle, as it suggests that only those who pay a tax should receive the benefits from the expenditure financed by that tax.

Question 18

Suppose fairness is defined as those with the highest incomes can afford to pay a greater proportion of their income in taxes. Then which of the following taxation systems would be consistent with this notion of fairness?

Accepted Answer

A progressive tax on income would be consistent with the idea that those with higher incomes should pay a greater proportion of their income in taxes. As income increases, the tax rate also increases, so the wealthy pay a higher rate than the poor. A flat tax or fixed federal tax would not take into account income differences and would likely be seen as unfair, while a true flax tax, where everyone pays the same amount regardless of income, would also not be consistent with this notion of fairness.

Question 19

When the tax structure of a nation is progressive, as incomes increase, the tax rate:

Accepted Answer

When the tax structure of a nation is progressive, as incomes increase, the tax rate increases. This means that those with higher incomes will pay a higher percentage of their income in taxes than those with lower incomes. This is often seen as a way to promote greater income equality and fairness in taxation.

Question 20

If a person is concerned that an additional $1,000 income will move him\her into a new tax bracket, that person is worried about the:

Accepted Answer

The concern about moving into a new tax bracket indicates a concern about the marginal tax rate. This is the rate of tax that will be applied to the additional income earned, not the overall rate that applies to all income.

Quiz 12: The Public Sector