Deck 14: Personal Income Taxation in the United States

Question 1

The primary concern of the 1964 tax reform was _____.

A)fiscal stabilization
B)macroeconomic policy
C)equity considerations
D)efficiency considerations

Answer 1

B

Question 2

Items subtracted from tax liability are called _____.

A)tax credits
B)tax deductions
C)tax exemptions
D)tax exclusions

Answer 2

A

Question 3

Exemptions are better off for the taxpayer than deductions _____.

A)only in the case of housing-related tax preferences
B)when itemizing deductions
C)when taking the standard deduction
D)for high-income taxpayers

Answer 3

C

Question 4

From the 1960s to the early 1990s,marginal tax rates _____.

A)varied,but not in a consistent direction
B)steadily declined
C)steadily increased
D)remained relatively constant

Question 5

Which of the following is not included in taxable income?

A)wages
B)salaries
C)alimony received
D)interest on municipal bonds

Question 6

What percentage of the U.S.population was subjected to the 1913 income tax?

A)1 percent
B)5 percent
C)10 percent
D)15 percent

Question 7

When the current U.S.income tax system was instituted in 1913,the rate on the highest tax bracket was _____.

A)28 percent
B)1 percent
C)15 percent
D)7 percent

Question 8

The 2002 federal tax cuts _____.

A)were based on efficiency considerations
B)were based on equity considerations
C)were based on budgetary considerations
D)did not have a clear motivation

Question 9

Subtracting all exemptions,except for _____,gives the taxpayer's adjusted gross income.

A)capital gains exemptions
B)personal exemptions
C)business expenses exemptions
D)home office exemptions

Question 10

The Tax Reform Act of 1986 was concerned with _____.

A)fiscal stabilization
B)macroeconomic policy
C)equity considerations
D)efficiency considerations

Question 11

_____ is determined by subtracting exemptions and deductions from total income.

A)Adjusted gross income
B)Taxable income
C)Tax base
D)Disposable income

Question 12

Withholding of the federal income tax _____.

A)was first used during the civil war
B)was first used during World War I
C)was first used during World War II
D)was first used after World War II

Question 13

The United States first instituted an income tax in

A)1851
B)1861
C)1871
D)1881

Question 14

Which of the following did the 1986 Tax Reform Act not intended to do?

A)lower marginal tax rates
B)broaden the tax base
C)keep average tax rates the same
D)reduce the bias towards saving

Question 15

For a tax to be successful,the tax base must be ???_____.

A)easy to measure and monitor
B)large
C)inelastic
D)able to expand in times of crisis

Question 16

The 1964 tax reform was designed to _____.

A)simplify the tax structure
B)remove the bias towards consumption in the tax code
C)cut marginal tax rates in order to increase aggregate demand
D)cut average tax rates in order to decrease aggregate demand

Question 17

One of the primary reasons tax withholding was instituted was _____.

A)help speed up payments to the government
B)decrease the government's record-keeping burden
C)to improve the ability to audit individuals
D)so that top marginal tax rates could be tripled

Question 18

During 2005,the tax rate on the top income bracket in the U.S.tax system was _____.

A)28 percent
B)31 percent
C)35 percent
D)39 percent

Question 19

During the twentieth century,a primary driver of the expansion of the U.S.income tax system has been _____.

A)westward expansion
B)natural disasters
C)military conflict
D)withholding

Question 20

Which of the following are taxpayers not allowed to deduct from taxable income?

A)state income taxes
B)local income taxes
C)property taxes
D)interest on auto loans

Question 21

The definition of income in the U.S.tax code follows the Haig-Simons definition of income precisely.

Question 22

When taxpayers pay more in taxes because of inflation even when the nominal tax structure remains the same,this is called _____.

A)indexation
B)bracket creep
C)tax expenditure
D)nominal rigidity

Question 23

Ordinary income is taxed at a higher rate than capital gains.

Question 24

The United States indexed tax brackets in _____.

A)1962
B)1975
C)1982
D)1991

Question 25

Tax credits are more beneficial to taxpayers than _____.

A)exemptions
B)deductions
C)expenditures
D)a and b
E)a and c

Question 26

Tax preferences create more _____ than a broad-based income tax because they change the relative prices to the taxpayer of earning different types of income.

A)welfare loss
B)benefits
C)taxable income
D)tax avoidance

Question 27

Which of the following is not a tax-deferred saving method?

A)IRAs
B)Keogh plans
C)403(b)plans
D)Kemp IRA

Question 28

In 1963,the tax rate for those individuals earning in the highest income tax bracket was 91 percent.

Question 29

Taxpayers are _____ with a narrowly-based tax system with many deductions than with a broad-based income tax system that treats all income equally.

A)better off
B)the same
C)worse off
D)sometimes better off

Question 30

The underlying principles behind the slashing of marginal tax rates in 1964 were Monetarist.

Question 31

Employer withholding of the federal income tax began during World War I.

Question 32

The benefit of tax deferred savings accounts is_____.

A)that it helps avoid some of the double taxation of saving
B)that it helps taxpayers avoid bracket creep
C)that it increases government tax revenue in the long run
D)that it stimulates aggregate demand

Question 33

A reduction in tax expenditures _____.

A)will cause tax revenues to rise
B)will cause government spending on social policy to rise
C)will cause inflation to rise
D)will reduce the tax base

Question 34

_____ taxation,either through exemptions,deductions,or credits,that are designed to further some goal of social policy.

A)Indexation is a increase in
B)Tax expenditures are a reduction in
C)Bracket creep is an increase in
D)The broadening of the tax base is an increase in

Question 35

The _____ requires taxpayers to calculate their taxes without most tax preferences,compare it to their tax liability the conventional way,and then pay the tax based on which is higher.

A)Alternative Minimum Tax
B)Alternative Maximum Tax
C)Allocative Minimum Tax
D)Allocative Maximum Tax

Question 36

Which of the following is not a potential problem with tax expenditures?

A)They compromise tax system fairness.
B)They make the tax structure less efficient.
C)They increase the political costs of the tax system.
D)They cause taxpayers to substitute towards favored activities.

Question 37

The first United States income tax was instituted in 1913.

Question 38

As a result of the 1986 Tax Reform Act,in 1988 some high-income taxpayers had lower marginal tax rates than middle-income taxpayers.

Question 39

If the tax base is narrowed through an increase in exemptions,______ in order to raise the same level of revenue.

A)tax rates must be lowered
B)tax rates must be raised
C)tax expenditures must be increased
D)nothing must happen

Question 40

If a taxpayer itemizes deductions,then an exemption is worth the same as a deduction.

Question 41

Exemptions,deductions,and tax credits can lower a taxpayer's taxable income.Discuss their relative merits in terms of helping taxpayers reduce their tax liability.

Question 42

If all saving and investment could be placed into a tax-deferred saving account,then the federal income tax would approximate a consumption tax.

Question 43

Historically,the AMT has always affected a significant number of taxpayers.

Question 44

Tax expenditures can be viewed as government spending through the tax code.

Question 45

List four types of tax-deferred saving vehicles.How could tax-deferred saving vehicles,if modified,transform the U.S.income tax into a consumption tax?

Question 46

Federal income tax brackets are not currently indexed for inflation.

Question 47

Write a brief history of the federal income tax in the United States.Your description should reference dates and constitutional/political issues,if any.

Question 48

Explain the interaction between inflation and tax revenues.Did the indexing of tax brackets in 1982 eliminate all of the negative effects of inflation on taxes?

Question 49

Describe the effects that exemptions,deductions,and tax credits have on the income tax base,tax rates,and economic efficiency.

Question 50

Define tax expenditures.What are the costs and benefits to using tax expenditures for social policy rather than direct government expenditures?