Question 1

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 2

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 3

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

Accepted Answer

A progressive tax is one in which the tax rate increases as income increases. The federal personal income tax is an example of a progressive tax, as the tax rate increases as income increases. The excise tax on cigarettes and the federal tax on gasoline are examples of regressive taxes, as they have a fixed tax amount that does not change based on income.

Question 4

Which of the following taxes contributed the greatest percentage of total federal government tax revenues in recent years?

Accepted Answer

Individual income taxes have consistently contributed the greatest percentage of total federal government tax revenues, accounting for approximately 50% of all federal revenue in recent years. Corporate income taxes and excise taxes account for much smaller portions of federal revenue, while Social Security taxes are specifically earmarked for the Social Security program and not used for general government spending.

Question 5

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

Accepted Answer

A regressive tax is one in which the tax burden falls more heavily on lower-income individuals. The federal gasoline tax is an example of a regressive tax because it is a flat tax that is paid by all consumers, regardless of income level. This means that lower-income individuals pay a larger percentage of their income in gasoline taxes than higher-income individuals. The federal corporate income tax and federal personal income tax are both progressive taxes, meaning that they are designed to impose a larger burden on higher-income individuals.

Question 6

Which of the following is the largest source of revenue for the federal government?

Accepted Answer

Personal income tax is the largest source of revenue for the federal government, accounting for approximately half of all federal revenue.

Question 7

"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 with greater income or wealth should pay more in taxes than those with lower income or wealth. The statement suggests that it would be unfair to require people with income below $15,000 per year to pay income taxes, indicating that their ability to pay is limited.

Question 8

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

Accepted Answer

The benefits-received principle states that individuals should pay taxes based on the benefits they receive from government services. Excise taxes on gasoline are an example of this principle, as those who use more gasoline (and therefore benefit more from the use of roads and transportation infrastructure) pay more in taxes. Progressive tax rates and the personal and corporate income taxes are not as directly tied to the benefits-received principle.

Question 9

A tax is regressive if it collects a:

Accepted Answer

A tax is regressive if it takes a smaller fraction of income as income rises. This means that the burden of the tax falls more heavily on individuals with lower incomes, as they are paying a higher percentage of their income towards the tax.

Question 10

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 notion of fairness that those with higher incomes can afford to pay a greater proportion of their income in taxes. This is because a progressive tax system increases the tax rate as income increases, so those with higher incomes pay a greater percentage of their income in taxes. A flat tax or fixed federal tax would not be consistent with this notion of fairness as it would require everyone to pay the same amount regardless of income, which would be more burdensome for those with lower incomes. A flat sales tax on consumption purchases would also not be consistent with this notion of fairness as it would not be based on income, so those with lower incomes would end up paying a greater proportion of their income on taxes compared to those with higher incomes.

Question 11

The primary source of revenue at the federal level is:

Accepted Answer

The personal income tax is the largest source of revenue for the federal government, accounting for approximately half of all federal revenue. Corporate income tax, customs duties, and other taxes account for smaller portions of federal revenue. Property taxes are primarily collected at the state and local level, not at the federal level. Sales taxes are also primarily collected at the state and local level, although the federal government does collect some excise taxes on certain products.

Question 12

Which of the following is a regressive tax?

Accepted Answer

A regressive tax is one where the burden falls disproportionately on low-income individuals. A local sales tax of 5 percent is regressive because low-income individuals spend a larger portion of their income on goods and services subject to sales tax compared to high-income individuals, who have more disposable income. A state tax of 5 percent of income is progressive because it takes a larger percentage of income from high-income individuals. The federal individual income tax is also progressive, as is a federal flat tax of 30 percent because they both take a larger percentage of income from high-income individuals.

Question 13

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 a tax system where everyone pays the same percentage of their income in taxes, regardless of their income level. This type of tax is often viewed as fairer than a regressive tax, which takes a higher percentage of income from those with lower incomes, or a progressive tax, which takes a higher percentage of income from those with higher incomes.

Question 14

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

Accepted Answer

In a progressive tax structure, the tax rate increases as incomes increase. This means that those with higher incomes are taxed at a higher rate than those with lower incomes, which helps to redistribute wealth and reduce income inequality.

Question 15

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 an understanding of the marginal tax rate, which is the rate at which additional income is taxed after reaching a certain threshold. The proportional rate and flat tax rate do not involve differing tax rates for different income levels, and the regressive tax rate actually decreases as income increases.

Question 16

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 17

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 is one where individuals with lower incomes pay a higher percentage of their income in taxes than those with higher incomes. In this scenario, George's tax rate is 10% (1,000/10,000) while Laura's tax rate is 8% (4,000/50,000). Therefore, George pays a larger percentage of his income in taxes than Laura, making the tax system regressive.

Question 18

"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 suggests that those who receive more benefits from a government program or service should pay more taxes to support it. This principle is reflected in the statement "He who pays a tax should receive the benefit from the expenditure financed by the tax."

Question 19

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

Accepted Answer

The ability-to-pay philosophy of taxation states that individuals with higher incomes should pay a higher percentage of their income in taxes than those with lower incomes. The progressive income tax is designed to follow this philosophy, as it requires those with higher incomes to pay a higher percentage of their income in taxes.

Question 20

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 is the single most important tax at the federal level, accounting for slightly less than half of revenue. This tax is levied on the income of individuals and households, and rates vary based on income level. The corporate income tax, estate tax, property tax, and sales tax all generate significant revenue for the government, but not as much as the personal income tax.

Quiz 16: The Public Sector