Question 1

Provide two justifications for not taxing unrealized capital gains.

Accepted Answer

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Question 2

Severance taxes do not allow companies to shift any the tax burden to demanders because the supply of natural resources is completely inelastic.

Accepted Answer

Severance taxes can lead to higher prices for consumers if companies are able to pass on some of the tax burden, depending on the elasticity of demand for the product and the market structure.

Question 3

Why is it important to consider the personal income tax when evaluating the corporate income tax? Give an example of how differential rates between the corporate and personal income tax rates can change taxpayer behavior.

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Question 4

Discuss why saving and investing entails risk.What is the reward for bearing risk? Explain how income taxes affect the returns to risk bearing and its impact on overall risk taking and innovation.

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Question 5

There are no arguments in favor of inheritance taxation on efficiency grounds,only on equity grounds.

Accepted Answer

Arguments in favor of inheritance taxation on efficiency grounds include reducing the concentration of wealth, which can lead to a more efficient allocation of resources by preventing the perpetuation of economic power and encouraging a more merit-based economy.

Question 6

A property tax discourages improvements that would increase the value of the property.

Accepted Answer

A property tax is based on the value of the property, including both the land and the buildings on it. Therefore, making improvements that increase the property's value can also increase the property tax liability, potentially discouraging such improvements.

Question 7

A property tax is equivalent to a tax on income.

Accepted Answer

A property tax is a tax on the value of a person's property, whereas income tax is a tax on a person's income. They are not equivalent taxes.

Question 8

Discuss the thought process of the owners of a new business with regard to property taxes when deciding where to locate.Will they always locate where property taxes are lowest? Why or why not?

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Question 9

Is it proper to say corporations pay taxes? Why or why not? How does the allocation of the corporate income tax burden change from the short to the long run?

Accepted Answer

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Quiz 15: Taxes on Business Income and Wealth