Deck 21: Fundamental Tax Reform: Taxes on Consumption and Wealth

Question 1

Consumption taxes are generally viewed as

A) regressive.
B) progressive.
C) simple to calculate.
D) multiplicative.

Answer 1

regressive.

Question 2

A unit tax is

A) levied at different rates on the purchase of different commodities.
B) less than 0.
C) a percentage of the value of the purchase.
D) a given amount for each unit purchased.

Answer 2

a given amount for each unit purchased.

Question 3

Excise taxes are distortionary taxes.

A) True
B) False
C) Uncertain

Answer 3

True

Question 4

Disadvantages of a consumption tax are

A) the administrative problems.
B) the transitional problems.
C) dealing with gifts and bequests.
D) all of these answer options are correct.

Question 5

Which of the following is an unit excise tax?

A) A tax of 15%
B) An admission fee of $2.00 on each ticket purchased
C) An ad valorem tax of $3.00
D) An income tax of $3.00

Question 6

A tax on consumption for those who are nonsavers

A) is equivalent to a tax on income.
B) causes income gains to increase dramatically.
C) would be preferred to a tax on wealth.
D) makes it difficult to tell what the result for the nonsavers would be.

Question 7

Value-added taxes (VAT)are very popular in the United States.

A) True
B) False
C) Uncertain

Question 8

Wealth taxes are assessed on a stock of assets instead of a flow such as income or sales.

A) True
B) False
C) Uncertain

Question 9

Who pays a consumption tax?

A) People who purchase goods
B) Firms who purchase goods
C) The elderly when they purchase goods
D) All of the answer options are correct.

Question 10

A tax levied on an individual's total lifetime acquisitions from inheritances and gifts is known as

A) inheritance tax.
B) death tax.
C) accessions tax.
D) unified transfer tax.

Question 11

A tax,in which amounts transferred as gifts and bequests are jointly taken into account,is known as

A) inheritance tax.
B) death tax.
C) accessions tax.
D) unified transfer tax.

Question 12

Sale taxes are

A) easy to administer at lower rates.
B) correctives for externalities.
C) substitutes for user fees.
D) all of these answer options are correct.

Question 13

The Value Added Tax (VAT)is

A) not often used in the United States.
B) a percentage tax.
C) added at each stage to production.
D) all of these answer options are correct.

Question 14

Why might an individual set up trusts?

A) as a strategy to avoid taxes on wealth.
B) for lower insurance premiums.
C) to insure the security of a loan.
D) to have a steady stream of income during retirement.

Question 15

The gross estate is

A) very disgusting.
B) all property owned by decedent at time of death.
C) general property that is held in a trust.
D) being phased out of current tax law.

Question 16

A trust that is the legal owner of a life insurance policy is

A) a policy holder.
B) an insurance trust.
C) a trust fund.
D) none of these answer options are correct.

Question 17

The largest source of tax revenues for states is

A) general sales.
B) motor fuel.
C) alcoholic beverages.
D) tobacco.

Question 18

In the next three years,the federal tax system could be replaced with a national retail sales tax.

A) True
B) False
C) Uncertain

Question 19

When each firm is liable for taxes on total sales but can claim the taxes already paid by suppliers as a credit against liability we are using the

A) reserve method.
B) chain method.
C) invoice method.
D) VAT method.

Question 20

A wealth tax can be justified because it

A) helps to correct certain (inevitable)problems that arise in the administration of an income tax.
B) the higher an individual's wealth,the greater his or her ability to pay,other things - including income - being the same.
C) reduces the concentration of wealth,which is desirable socially and politically.
D) are payments for benefits that wealth holders receive from government.
E) all of these answer options are correct.

Question 21

Throughout this discussion of taxes,there has been repeated mention of the need for progressivity in the tax system.Why is this an important goal for tax systems in most societies?

Question 22

Suppose that the total number of hours (T)is 720 and the wage rate is $10.Suppose further that all income is spent on consumption,so that the vertical axis is also total consumption.
(A)Sketch this graph.
(B)Sketch the graph if a 5% consumption tax is imposed.
(C)Can you say conclusively that a consumption tax will lower hours worked?

Question 23

A consumption tax generally will be borne according to labor earnings.

A) True
B) False
C) Uncertain

Question 24

Sales taxes are generally progressive.

A) True
B) False
C) Uncertain

Question 25

Assume two people,Tom and Rose,live for two periods and are taxed on consumption in both periods.In period 0,Rose has consumption of 50.In period 1,Rose has consumption of 50.Tom has consumption of 40 in period 0.Use the formula below for lifetime consumption tax liability,Rⁱ,to find out what Tom's period 1 consumption must be,to ensure that tax liabilities between the two are equal,if the consumption tax rate is 9% and the rate of interest is 4%,

Question 26

This chapter has spent a lot of time dealing with issues of wealth and consumption.One suggestion has been to have a tax on wealth.What are some of the benefits of this proposal?

Question 27

Many states have no state-level personal income tax.How do you think that effects expenditure decisions?

Question 28

General sales taxes totaled 226.7 billion dollars as a source of state revenue in 2008.

A) True
B) False
C) Uncertain

Question 29

Under a consumption tax,only current expenditures are taxed.

A) True
B) False
C) Uncertain

Question 30

A publisher sells $400,000 worth of books,magazines,and other reading materials in a given year.The publisher earns a profit of $100,000 that year.Her purchase invoices indicate that she bought $100,000 worth of glue,paper,and other materials during the year.Her labor costs were $150,000,and she purchased $45,000 of new equipment that year.Calculate her tax liability under a 12% consumption-type,value-added tax.

Question 31

The general tax can be considered a retail sales tax.

A) True
B) False
C) Uncertain

Question 32

A gross estate is all of the taxable assets of a person at the time of death.

A) True
B) False
C) Uncertain

Question 33

One advantage of a consumption tax is that there are fewer problems with inflation.

A) True
B) False
C) Uncertain

Question 34

A differential commodity tax is the same as an excise tax.

A) True
B) False
C) Uncertain

Question 35

Little Percy lives in two periods.His earnings in the present are 150; in the future he will earn 10% more than today.The interest rate is 5 percent.If his consumption today is 160,what is the most he can consume in the future?