Deck 12: Taxing and Spending

Question 1

Sales taxes are criticized because they place a greater burden on those with lower incomes because everyone, regardless of their income, pays the same percentage.This type of tax is called

A)progressive.
B)a user fee.
C)regressive.
D)bracket creep.

Answer 1

C

Question 2

Property taxes

A)are difficult to administer and somewhat arbitrary.
B)are perceived as the most fair tax by citizens.
C)account for about 80 percent of tax revenue.
D)account for a large portion of state revenue and a small portion of local revenue.

Answer 2

A

Question 3

The state that generates the largest portion of its budget from severance taxes is

A)Wyoming.
B)Alaska.
C)Utah.
D)Texas.

Answer 3

B

Question 4

Sin taxes account for a small but growing percent of state revenues and refer to the taxes levied on items such as

A)expensive automobiles and boats.
B)gasoline, hotel rooms, and airline tickets.
C)tobacco products and alcohol.
D)prescription drugs and food.

Question 5

The principle of diversity in the financial systems of American federalism means that

A)the state government relies most heavily on property taxes for its revenues, whereas the other levels have their own primary revenue sources.
B)each level of government is, by tradition, free to rely as heavily as it must on any source of revenue.
C)each level of government is restricted by the U.S.Constitution as to how it may gather revenues.
D)the national government relies most heavily on the income tax for its revenues, whereas the other levels have their own primary revenue sources.

Question 6

The largest source of tax revenue for states comes from

A)sales taxes.
B)property taxes.
C)personal income taxes.
D)severance taxes.

Question 7

Personal and corporate income tax is

A)in use in all fifty states.
B)used as a source of revenue in just seven states but is under consideration in a number of others.
C)an attractive tax based on yield, elasticity, and ease of administration.
D)reserved by all states for their use and thus not available to local governments.

Question 8

The general sales tax is

A)the main source of income in all fifty states.
B)the most progressive of all taxes.
C)a consistently unpopular form of taxation.
D)the favorite of voters, who perceive it to be fairer.

Question 9

A progressive tax is one that

A)puts you into a higher tax bracket based on the amount of property you own.
B)is based on the benefit principle.
C)places the greater burden on low-income citizens.
D)increases as a percentage of income as that income rises.

Question 10

The distribution of federal countercyclical aid dollars to the states and localities is a

A)practice designed to equalize state revenue across all fifty states.
B)means of transferring resources used only in good economic times.
C)device for balancing grants-in-aid funding for school and social welfare costs in the fifty states.
D)means recognized by Congress as necessary to help states and localities recover from recessions.

Question 11

Evaluating tax options on the basis of "political accountability" means

A)using a procedure known as "bracket creep" to ensure that taxpayers are aware of their liabilities.
B)considering the ease with which the tax can be administered by a government using standard accounting methods.
C)adjusting taxes as the economy heats up or cools down.
D)considering the degree to which the effects of a particular tax are made public by political decision-makers.

Question 12

Severance taxes, as a source of state revenues, are popular

A)because they exempt natives from the tax.
B)with resource-rich states, but the rates are fully controlled by the national government.
C)in states like Virginia and Washington, but unused in Alaska and Wyoming because of a decline in the price of natural resources.
D)in states that have a lot of natural resources.

Question 13

Own-source revenue is money that is gathered from

A)intergovernmental transfers of money.
B)income taxes.
C)taxes and fees collected from people, services, and products within the jurisdiction of each level of government.
D)grants-in-aid from the federal government.

Question 14

Use of an equity criterion in judging a tax would entail

A)determining the degree to which the burden of the tax is distributed in accordance with ability to pay.
B)ensuring that all incomes are taxed at the same rate.
C)determining the degree to which the tax yield is responsive to changes in economic conditions.
D)abandoning the income tax, as it cannot be adapted to meet this criterion.

Question 15

The use of "circuit breaker" legislation on property taxes is intended to

A)make taxes more equitable by placing limits on taxes applied to certain categories of people, such as the poor or the elderly.
B)make taxes less equitable as the tax rate is closely related to ability to provide tax breaks to rental property owners.
C)ensure parity in property tax revenues between wealthy and poor neighborhoods.
D)make tax collection more efficient.

Question 16

Today, property taxes represent the

A)largest source of local government revenues.
B)smallest component of New Hampshire's tax revenues and the largest part of those revenues in Alabama.
C)preferred way of collecting taxes in local government because of the ease with which they are administered.
D)largest source of state government revenues.

Question 17

Today, revenue from the federal government accounts for about _____ percent of state and local spending.

A)30
B)20
C)40
D)18

Question 18

Evaluating tax options on the basis of "yield" means

A)examining the total dollars collected by the government using a particular tax.
B)considering the interest earned on the tax when it is invested.
C)examining the amount of money that government can expect after it has paid to collect the tax.
D)considering the responsiveness of a particular tax to economic conditions.

Question 19

What two basic principles describe state and local financial systems?

A)autonomy and resourcefulness
B)resourcefulness and dependence
C)interdependence and diversity
D)autonomy and diversity.

Question 20

Congress passed the Internet Tax Freedom Act to

A)allow state and local governments the right to tax all transactions on the Internet.
B)ban the catalog sales law from apply to Internet transactions.
C)forbid taxes from being charged on Internet sales during the Christmas holidays (defined in the law as November 20 through December 31); state and local governments could tax as they please during the rest of the year.
D)keep states from taxing Internet sales.

Question 21

The principle of equity as it relates to taxation refers to the distribution of the tax burden in accordance with ability to pay.

Question 22

A transfer of federal dollars to states and localities to counteract a downturn in the economic cycle is called countercyclical aid.

Question 23

Because of their increased fiscal capacity, states are no longer as tied to national monetary or fiscal policy.

Question 24

Current procedures for estimating state and local revenues

A)are unreliable, given the lack of data.
B)are free of error now that highly reliable computers are available.
C)rely on simply extrapolating from past trends.
D)rely more and more on sophisticated econometric models and computer technology.

Question 25

The concept of elasticity with respect to taxation holds that tax yields should be automatically responsive to changes in economic conditions.For example, as per capita income grows, revenues should also increase without increases in the tax rate.

Question 26

What is the name of the federally funded program that provides preschool education, medical and dental care, and social services for three- to five-year-olds?

A)TANF
B)Aid to Families with Dependent Children
C)Head Start
D)Bright Start

Question 27

The commercial bond market places an informal limit on state and local debt by rating each government's ability to pay its various obligations and

A)the rating affects interest rates, which then influence the jurisdiction's willingness to incur new debts.
B)refusing to lend money to states with poor credit ratings.
C)withdrawing the right to trade in the market to those jurisdictions with a "C" or lower rating.
D)calling on the federal courts to foreclose on those jurisdictions with outstanding debts.

Question 28

Financial pressure on a government from such factors as revenue shortfalls and taxing and spending limitations is known as

A)a recession.
B)fiscal stress.
C)an economic downturn.
D)fiscal mismanagement.

Question 29

A regressive tax places a greater burden on the affluent because the tax rate falls as taxable income rises.

Question 30

The tax revolt that originated in the late 1970s and early 1980s

A)has continued at a slower pace today.
B)is being repealed as state and local governments put taxes back into place to restore the damage done by past deficits and cutbacks in services.
C)is not apparent as few states did more than give lip service to the crisis.
D)has all but disappeared.

Question 31

The state with the most progressive personal income tax is California.

Question 32

The function that consumes the largest proportion of total state spending is

A)public welfare.
B)health care.
C)education.
D)highways and infrastructure.

Question 33

States continue to rely on property taxes, which currently account for more than 40 percent of their revenues.

Question 34

The general sales tax is a good example of a "progressive" tax.

Question 35

The use of state lotteries as money raisers is

A)a relatively new phenomenon in the United States.
B)an increasingly popular practice but one that is costly to operate and has low yields.
C)in existence in all states but is being phased out in many of them.
D)a practice that has never failed to win approval when put to a popular referendum.

Question 36

Every state except __________ is constitutionally or statutorily mandated to balance its budget each fiscal year.

A)Oregon
B)North Carolina
C)Massachusetts
D)Vermont

Question 37

The most important state and local investment is usually the money in

A)the public-employee pension fund.
B)bond banks.
C)rainy day funds.
D)derivatives.

Question 38

The benefit principle holds that taxes should be levied on those who benefit directly from the government services.The benefit principle is illustrated in user fees.

Question 39

What function consumes the greatest amount of state and local budgets?

A)healthcare and hospitals
B)education
C)police, fire and corrections
D)public assistance.

Question 40

Many states establish rainy day funds

A)as a way of funding state retirement systems for school teachers.
B)but states with rainy day funds are in the minority.
C)because they face mandatory balanced-budget provisions and want to avoid the problems arising from faulty data or poor economic assumptions.
D)and yet all prohibit their use in cities and counties.

Question 41

Most states have general sales taxes.

Question 42

The costs for health care services in the United States have soared to more than $2 trillion annually-17 percent of the national economy and the highest of any country in the world.

Question 43

State lotteries are a fairly recent phenomenon and came about as a response to the fiscal stress of the 1970s and 1980s.

Question 44

Operating budgets must be balanced in all but one state but capital budgets, used for big purchases that must be paid for over time, typically run substantial deficits.

Question 45

Most states tax individual and corporate income.

Question 46

Every state except Vermont is constitutionally or statutorily mandated to balance its budget each fiscal year.

Question 47

When citizens want to pay for new government services by raising taxes, this is an example of the tax-service paradox.

Question 48

Severance taxes are taxes imposed on some form of natural resources.

Question 49

In 1911, New Jersey became the first state to implement a personal income tax, which was two years before the federal government enacted its own personal income tax.

Question 50

Revenue bonds are considered to be "full faith and credit" bonds.

Question 51

Congress passed the Internet Tax Freedom Act, which placed a temporary moratorium on taxing Internet transactions.The Act remains in effect today despite intense lobbying by the states who claim they are being deprived of tax revenue.

Question 52

Property taxes are more difficult to administer than general sales taxes.

Question 53

Rainy day funds have been widely adopted by the states.

Question 54

User fees are increasingly being levied on "nonessential" local government services, such as parks and recreation, libraries, and airports.According to the text, the average American pays more than $1,800 a year in user fees.

Question 55

Maine and Massachusetts operate extensive health care programs with universal coverage for those unable to afford health care insurance.

Question 56

Some 26 million Americans remain uninsured and they are largely dependent on government for medical services.

Question 57

No legal lotteries existed in the states between 1895 and 1963.

Question 58

Fiscal stress refers to financial pressures placed on a government from such factors as revenue shortfalls and taxing and spending limitations.

Question 59

State lotteries exist in the majority of states (forty-one).

Question 60

In 1978, California voters passed Proposition 13, which significantly raised property taxes.

Question 61

Where does all the money that state and local governments collect go? In other words, in what major areas and services do state and local governments spend the money?

Question 62

Two basic principles-interdependence and diversity-describe state and local financial systems as they have evolved.Explain the meaning of the terms and the nature of state and local fiscal systems in light of these principles.

Question 63

Many criteria can be used to evaluate taxes.Explain three of the most commonly agreed upon criteria.Then use the sales tax, property tax, personal income tax, and lottery to illustrate how these criteria might apply in each instance.

Question 64

As federal funding to the states was reduced, states became creative in generating new funds via new sources of revenue.Describe some of the areas that states turned to for additional revenues.

Question 65

Congress has forbidden, by law, state and local governments to tax Internet sales and access, notwithstanding a few limited exceptions.The original purpose was to give this new technology (the Internet)time to develop without government interference.States argue that they are losing billions of dollars in revenue and that the Internet is hurting local businesses and retail sales in their states.In your view, should state and local governments be allowed to tax Internet sales? Or, should the Internet be "off limits" for states to tap as another source of revenue?