Deck 11: Principles of Tax Policy

Question 1

In addition to being a direct application of _____,user charges are also quite ______.

A)the benefit principle;inefficient
B)the benefit principle;efficient
C)the ability-to-pay principle;inefficient
D)the ability-to-pay principle;efficient

Answer 1

B

Question 2

Consider a world with two income earners and an income tax.Individual A earns $25,000 and pays $1,000 in taxes.Individual B earns $100,000 and pays $4,000 in taxes.Which of the following best classifies the income tax system in this world?

A)proportional
B)progressive
C)regressive
D)sumptuary

Answer 2

A

Question 3

Which of the following is not a feature of an efficient tax?

A)An efficient tax should minimize the excess burden of taxation.
B)An efficient tax should have low compliance costs.
C)An efficient tax should be equitable.
D)An efficient tax should be easy to monitor and administer.

Answer 3

C

Question 4

Tolls for government turnpikes have features of a tax based on _____.

A)the benefit principle
B)the ability-to-pay principle
C)the Ramsey rule
D)redistribution

Question 5

As conflicts between principles of taxation are normative in nature,_____.

A)agreement is easily reached
B)disagreement cannot easily be resolved
C)the benefit principle should be the proper default
D)the Pareto criteria should be used instead

Question 6

The principle of horizontal equity is satisfied when _____.

A)individuals receiving the same benefits end up paying the same in taxes
B)the public interest is being met
C)all individuals pay the same tax
D)individuals with an equal ability to pay end up paying the same in taxes

Question 7

A tax that taxes a larger percentage of an individual's income as their income rises is called a _____.

A)proportional tax
B)progressive tax
C)head tax
D)regressive tax

Question 8

Suppose a tax is implemented to fund low-income housing.Which principle of taxation is most appropriate as a guide to evaluating the tax?

A)the benefit principle
B)the ability-to-pay principle
C)a combination of the benefit principle and the ability-to-pay principle
D)the mobility principle

Question 9

The ability-to-pay principle states that _____.

A)individuals should pay taxes in proportion to their ability to pay
B)individuals should not move to localities where they cannot pay the taxes
C)individuals should not use government programs unless they contribute something in taxation
D)individuals should pay taxes only if they benefit

Question 10

Which of the following is a disadvantage of the benefit principle?

A)It cannot be applied to transfer programs.
B)It does not apply to user charges.
C)It is completely incompatible with efficiency.
D)It closely resembles a market price.

Question 11

Suppose Seth and Nathan are college students with the same annual income,yet Seth pays half of the annual income tax that Nathan does.Which statement best summarizes a possible issue with this outcome from a principle of tax policy perspective?

A)It violates the principle of vertical equity.
B)It violates the principle of diagonal equity.
C)It violates the principle of horizontal equity.
D)It violates the benefit principle.

Question 12

Which of the following are not subsets of the ability-to-pay principle?

A)horizontal equity
B)vertical equity
C)diagonal equity
D)beneficial equity

Question 13

The use of a property tax to fund public schools is an example of _____.

A)the benefit principle at work
B)the ability-to-pay principle at work
C)a compromise between the benefit and ability-to-pay principles
D)the Ramsey rule at work

Question 14

Assuming that we can properly measure ability to pay,how do we use the principle of vertical equity to determine how much someone with greater ability to pay should pay in taxes?

A)By integrating it with the principle of horizontal equity.
B)Through reference to the benefit principle.
C)By looking at elasticities of demand for various income quintiles for the good in question.
D)We cannot use the principle of vertical equity to answer this question.

Question 15

The principle of vertical equity is satisfied when _____.

A)individuals with a greater ability to pay have higher taxes than individuals with a lower ability to pay
B)individuals receiving higher benefits from a government program pay higher taxes than those receiving lower benefits
C)taxes increase as family size increases
D)taxes on higher income individuals are more efficient than the taxes on lower income individuals

Question 16

The benefit principle views _____.

A)a tax as the price that is paid for a government-supplied activity
B)all government activity as beneficial
C)all taxes as being beneficial if they are spent in the public interest
D)all Pareto-efficient moves as beneficial

Question 17

Adam Smith noted that when public expenditures are undertake for the general benefit of everyone in a society then _____.

A)there is considerable conflict between the benefit principle and the ability-to-pay principle
B)there is no conflict between the benefit principle and the ability-to-pay principle
C)the benefit principle provides little guide to tax policy
D)the ability-to-pay principle provides little guide to tax policy

Question 18

The benefit principle states that_____.

A)people who benefit from the rule of law should pay taxes
B)people who benefit from Social Security should voter for it
C)people who benefit from a government activity should pay for it in proportion to their wealth
D)people who benefit from a government activity should be those who pay for it

Question 19

A tax that takes a smaller percentage of an individual's income as their income rises is called a _____.

A)proportional tax
B)progressive tax
C)sumptuary tax
D)regressive tax

Question 20

A tax that that takes the same percentage of a taxpayer's income regardless no matter what their total income is called a _____.

A)proportional tax
B)progressive tax
C)head tax
D)regressive tax

Question 21

The concept of progressive,proportional,and regressive taxation is positive in nature.

Question 22

Taxes on beer are progressive if considered in terms of lifetime income because college students consume so much beer.

Question 23

A major tax overhaul is more likely to be in the public interest that a small tax reform.

Question 24

Consider a world with three income earners.Individual A earns $20,000 and pays $1,000 in taxes.Individual B earns $50,000 and pays $5,000 in taxes.Individual C earns $100,000 and pays $2,000 in taxes.Which of the following best classifies the income tax system in this world?

A)proportional
B)progressive
C)regressive
D)none of the above

Question 25

Equity issues in taxation are inherently positive in nature.

Question 26

In evaluating tax policy it is important to view tax policy as being designed by a benevolent overseer.

Question 27

In practice,it is difficult to integrate the concept of vertical equity into the tax code although it is widely agreed that high-income individuals should pay more.

Question 28

Political considerations are unimportant to an understanding of tax policy.

Question 29

Since there are many special interests lobbying in favor of different tax changes but no special interests lobbying in favor of the public interest,this suggests that tax code changes will _____.

A)lead towards more regressive taxation
B)will favor special interests
C)not be in the direction of efficiency
D)b and c

Question 30

Concepts of equity are important because they provide some criteria for evaluating the fairness of a tax system.

Question 31

Using the principle of vertical equity,it is easy to argue in favor of _____.

A)sumptuary taxation
B)progressive taxation
C)regressive taxation
D)none of the above

Question 32

Welfare programs satisfy the criteria of the benefit principle.

Question 33

Taxes that are designed to discourage consumption of the taxed good are called _____.

A)regressive taxes
B)head taxes
C)sumptuary taxes
D)sales taxes

Question 34

Consider a world with two income earners and an income tax.Individual A earns $25,000 and pays $1,000 in taxes.Individual B earns $100,000 and pays $3,000 in taxes.Which of the following best classifies the income tax system in this world?

A)proportional
B)progressive
C)regressive
D)consumption

Question 35

There are no indisputable principles of tax equity.

Question 36

If only current income is considered,beer taxes are _____.If lifetime income is considered,however,beer taxes are _____.

A)regressive;progressive
B)regressive;proportional
C)progressive;regressive
D)proportional;progressive

Question 37

In spite of the stated goal of discouraging behavior,if a sumptuary tax is applied on _____,behavior will not change very much.

A)a good with elastic demand
B)a good with inelastic demand
C)income
D)wealth

Question 38

Horizontal equity is extremely compatible with the benefit principle.

Question 39

Sumptuary taxes are often justified on the grounds that _____.

A)bad activities should be discouraged
B)the rich should pay more
C)the poor should pay less
D)merit goods need encouragement

Question 40

Special interests influence tax policy at all levels of government,but ______.

A)they are most effective at the local level
B)they are most effective at the state level
C)they are most effective at the federal level
D)they are equally effective at all levels of government

Question 41

Is beer taxation a regressive,proportional,or progressive tax if viewed as a point in time? Please explain your answer.What about if viewed over a person's lifetime? If your answer changes,please explain why.

Question 42

Define the benefit principle.List two real world taxes that have the features of a tax based on the benefit principle.Why can't the benefit principle be the sole principle of taxation?

Question 43

What is a sumptuary tax? Give an explanation for how cigarette taxes could be justified as a sumptuary tax.Give an explanation for why cigarette taxation might not,in actuality,achieve the goal of sumptuary taxation.

Question 44

Define horizontal and vertical equity and discuss the concepts with respect to legitimacy and usefulness.

Question 45

What is the ability-to-pay principle of taxation? List one strength and one weakness of the ability-to-pay principle as a guide to tax policy.

Question 46

Define progressive,proportional,and regressive taxes.In a graph with percentage of income paid in taxes and income on the axis,draw three lines representing each of the three types of taxes.