Deck 9: Major Tax Structures: Income Taxes

Question 1

The average effective tax rate Mr. Smith pays equals to the nearest tenth of a percent):

A) 7.9%
B) 8.2%
C) 13.5%
D) 23.0%

Answer 1

79%

Question 2

A tax credit of $100 would reduce Mr. Smith's tax liability by:

A) 100
B) 30
C) 23
D) 8

Answer 2

100

Question 3

A taxpayer may legally avoid paying federal income tax by:

A) receiving income in kind, not in cash.
B) working for a non-profit organization.
C) collecting income only from non-labor sources stock dividends, bank interest, etC))
D) None of the above

Answer 3

None of the above

Question 4

The average tax rate Mr. Smith pays equals to the nearest tenth of a percent):

A) 7.9%
B) 13.5%
C) 23.0%
D) 30.0%

Question 5

Indexation of individual income taxes is designed to prevent:

A) bracket creep.
B) the Laffer affect.
C) horizontal inequities.
D) regressivity.

Question 6

The marginal tax rate equals:

A) tax paid divided by the appropriate measure of affluence.
B) the tax liability resulting from true application of the tax statutes divided by the statutory base.
C) the tax rate required, at the margin, to balance the budget.
D) the amount by which a taxpayer's tax would increase from an additional dollar of the tax base.

Question 7

Approximately what average effective tax rate did Mr. Davidson pay?

A) 21%
B) 26%
C) 31%
D) None of the above.

Question 8

What is the value of X in the tax table?

A) 5705
B) 5811
C) 5917
D) None of the above or cannot be calculateD)

Question 9

Which of the following is not an advantage of income taxation?

A) Income taxation remains constant when the economy contracts.
B) Income taxes yield substantial amount of revenue.
C) Income taxation entails low collection costs.
D) Income is a reasonable measure of individual capacity to bear the cost of government.
Use the Following Tax Rate Schedule to Answer the Next Six Questions.
If taxable income is:
of the
But not amount
Over over- Tax is: over
$0 $2,300 -0- $2,300
2,300 3,400 ---11% 2,300
3,400 4,400 $121+12% 3,400
4,400 6,500 241+14% 4,400
6,500 8,500 535+15% 6,500
8,500 10,800 835+16% 8,500
10,800 12,900 1,203+18% 10,800
12,900 15,000 1,581+20% 12,900
15,000 18,200 2,001+23% 15,000
18,200 23,500 2,737+26% 18,200
23,500 28,800 4,115+30% 23,500
28,800 34,100 X + 34% 28,800
34,100 41,500 7,507+38% 34,100
41,500 55,300 10,319+42% 41,500
55,300 81,800 16,115+48% 55,300
81,800 ------ 28,835+50% 81,800

Question 10

Which of the following is true?

A) Taxable Income = Adjusted Gross Income - Personal Deductions + Personal Exemptions)
B) Taxable Income = Adjusted Gross Income - Personal Deductions + Personal Exemptions + Credits)
C) Taxable Income = Adjusted Gross Income + Personal Deductions + Personal Exemption)
D) Taxable Income = Adjusted Gross Income + Credits
Use This Information For the Next Three Questions.
A federal tax table contains the following excerpt:
If taxable income is:
At least But less than Your tax is
10,000 10,050 1178
10,050 10,100 1190
10,100 10,150 1202
10,150 10,200 1214

Question 11

An additional personal deduction of $200 would reduce Mr. Smith's tax liability by:

A) 200
B) 40
C) 46
D) 16

Question 12

A person has adjusted gross income of 15,000 and taxable of 10,125. In what marginal rate bracket is that person?

A) 10%
B) 12%
C) 24%
D) 28%

Question 13

Approximately what marginal rate did he pay?

A) 21%
B) 26%
C) 31%
D) None of the above.

Question 14

Approximately what average tax rate did Mr. Davidson pay?

A) 21%
B) 26%
C) 31%
D) None of the above.

Question 15

A state's basic individual income tax applies at a flat rate of 3.4 percent. Can the
distribution be progressive, at least in part?

A) Yes, because the state might allow counties to apply surtaxes to all income.
B) Yes, at the low end of the income range, because of the personal exemption.
C) Yes, because the state might apply a millionaire's surcharge.
D) No, don't be silly-the rate is flat.

Question 16

Mr. Smith has adjusted gross income of $26,000 and taxable income of $15,200. What is Mr. Smith's marginal tax rate to the nearest tenth of a percent)?

A) 7.9%
B) 13.5%
C) 23.0%
D) 30.0%

Question 17

What average tax rate does the person pay?

A) 8%
B) 10%
C) 12%
D) 24%

Question 18

What average effective tax rate does the person pay?

A) 8%
B) 10%
C) 12%
D) 24%
These Facts Are Used For the Next Three Questions.
Mr. Harley Davidson earned $107,300 adjusted gross income) in 1992. After application of the relevant legal provisions, his taxable income was $86,362. The relevant portion of the tax table reads:
If taxable income is:
At least But less than Your tax is
86,300 86,350 22,415
86,350 86,400 22,431
86,400 86,450 22,446

Question 19

Under the current federal individual income tax law, which of the following would be an exclusion?

A) Wages paid by a non-profit organization, like the Red Cross.
B) Interest paid on a bond issued by a state government before 1986.
C) The value of an old car you received in exchange for painting a house.
D) All the above are exclusions.

Question 20

Tax credits, exemption, and exclusions all can be used by governments to reduce taxes. Consider a credit of $5,000, an exemption of $5,000, and an exclusion of $5,000-all to be added to the existing federal individual income tax. Which of the following statements is correct?

A) The revenue lost by the U.S. Treasury would be greatest for the exclusion, because such a provision removes transactions which would appear to be income from the tax base.
B) The personal exemption would save the individual taxpayer the most money because it would have the greatest relative increase over existing exemption levels currently somewhat over $2,000).
C) The credit will cause greater revenue loss, because it takes effect after the application of the rate schedule and directly reduces tax liability.
D) All tax reducing impacts would be the same.

Question 21

The present federal income tax structure would:

A) tax none of the these capital gains.
B) tax accrued gains in 1990 and 1991.
C) tax realized gains in 1991.
D) tax accrued gains in 1991.
Use the Following Tax Schedule to Answer the Next Question.
If taxable income is The tax is
Not over $36,900 15% of taxable income
Over $36,900 and less than $89,150 $5,535 plus 28% of the excess over
$36,900
Over $89,150 and less than $140,000 $20,165 plus 31% of the excess over
$89,150

Question 22

On an accrual basis, my capital gain for 1991 would have been:

A) $2,000 = 20 * 100
B) $1,000 = 10 * 100
C) $200 = 2 * 100
D) $1,800 = 18 * 100

Question 23

The federal government may levy an individual income tax without the need to apportion among states because:

A) the U.S. Supreme Court has ruled that the individual income tax is not a direct tax.
B) individual income taxes are subject only to the requirement that they be uniform across states.
C) the sixteenth amendment allows such taxes without apportionment.
D) None of the above.
The Next Three Questions Correspond to the Following Passage.
In 1989, I purchased 100 shares of Hyper-Zap Global at $10 per share. I sold the shares in 1991 at a price of $20 per share. Although I did not sell the shares in 1990, I could have sold them for $18 per share.

Question 24

Amanda Huggins has an adjusted gross income of $45,500 and has itemized deductions and exemptions totaling $6,700. What is Ms. Huggins' marginal tax rate?

A) 13.3%
B) 15.0%
C) 15.6%
D) 28.0%
e. 31.0%

Question 25

On a realization basis, my capital gain for 1991 would have been:

A) $2,000
B) $1,000
C) $200
D) $1,800

Question 26

Indexation of individual income taxes is designed to:

A) prevent bracket creep.
B) increase the progressivity of the tax system.
C) increase horizontal equity within the tax system.
D) reduce the individual tax burden and increase corporate income tax revenues.

Question 27

Governments provide tax preferences in several different formats. Suppose a preference of up to $200 is proposed to assist with purchase of Kindle readers, so that families may easily have cheap and easy access to electronic books sold by Amazon. The preference equals the amount paid for the Kindle, up to a maximum of $200. Which of the following statements about the revenue loss from this provision is accurate?

A) An itemized deduction has the same impact as an adjustment.
B) An adjustment provides the same tax saving effect for individuals in all tax brackets.
C) A credit provides greater relief to high-income taxpayers.
D) An itemized deduction brings the least revenue loss.