Question 1

Some people argue that social insurance taxes should be increased to remedy the fiscal problems faced by Social Security.What is a potential problem with this proposed solution?

Accepted Answer

Increasing social insurance taxes may help in the short term, but it does not address the fundamental issue of a growing elderly population and a shrinking working population. As the number of retirees continues to increase, the strain on the Social Security system will only grow. Therefore, other solutions, such as increasing retirement age or means-testing benefits, may also need to be considered.

Question 2

Suppose you return to college and earn an MBA,after which you get an upper-management position with Yum! Brands.If your starting salary is $125,000,and the percentages are the same as they were in 2016,how much will you owe in social insurance taxes?

Accepted Answer

Social insurance taxes include FICA taxes (Social Security and Medicare) and unemployment taxes (FUTA and SUTA). The FICA tax rate is 7.65% for Social Security and 1.45% for Medicare, for a total of 9.1%. The FUTA tax rate is 0.6% and the SUTA tax rate varies by state. Assuming a SUTA tax rate of 2.7%, the total social insurance tax rate would be 9.1% + 0.6% + 2.7% = 12.4%. Therefore, the amount of social insurance taxes owed would be $125,000 x 12.4% = $15,500.

Question 3

Typically,the average tax rate for a person is ________ his or her marginal tax rate,because the marginal tax rate applies to ________.

Accepted Answer

The average tax rate is usually below the marginal tax rate because the marginal tax rate applies to the last dollars taxed, not to all income.

Question 4

The United States has a ________ income tax system.

Accepted Answer

A progressive income tax system means that as a person's income increases, they are taxed at higher rates, which is often seen as a fair way to distribute the tax burden. This is the system that the United States currently has in place.

Question 5

According to the U.S.Federal Tax Rates chart from the textbook (Figure 15.6),a person earning $100,000 in a given year is in the 28 percent tax bracket.How much will this individual owe in taxes for that year?

Accepted Answer

According to the tax chart, the first $9,525 of income is taxed at 10%, the next $29,175 is taxed at 12%, and the remaining $61,300 is taxed at 22%. Therefore, the individual will owe 10% of $9,525 ($952.50), 12% of $29,175 ($3,501), and 22% of $61,300 ($13,486), for a total of $17,939.50 in taxes. This is less than $28,000 but greater than $15,000, so the answer is D.

Question 6

Suppose you graduate with an accounting degree and then become a certified public accountant.You work for a big firm but are offered a chance to prepare tax documents for your city government as an independent contractor.The city offers to pay you a consulting fee of $10,000.When deciding whether to accept the additional work,the most important tax factor in your decision is

Accepted Answer

The most important tax factor in this decision is the marginal tax rate. This is because the consulting fee will be taxed at the highest tax rate that the individual falls under, which is the marginal tax rate. Therefore, it is important to consider the impact of the additional income on the individual's marginal tax rate and whether it is worth accepting the additional work based on the resulting tax implications.

Question 7

The most relevant tax rate for making decisions about earning additional income is the ________ tax rate.

Accepted Answer

The marginal tax rate is the rate at which the next dollar of income will be taxed. This is important when making decisions about earning additional income, as it helps to calculate how much of that income will be taxed and how much will be kept. This information is useful in deciding whether the effort and time put into earning additional income is worth the potential tax burden.

Question 8

Refer to the following table to answer the following questions: 
-Using the table,what is the total federal income tax bill for someone who makes $67,000 per year?

Accepted Answer

The answer of Refer to the following table to answer...

Question 9

Payroll taxes

Accepted Answer

Payroll taxes are taxes that are withheld from an employee's paycheck by their employer and are used to fund mandatory spending programs such as Social Security and Medicare. They are not based solely on income and are not limited to a certain income level. Additionally, even self-employed individuals are typically responsible for paying payroll taxes on their own earnings.

Question 10

The current tax rate for Social Security is

Accepted Answer

The answer of The current tax rate for Social Security...

Question 11

Suppose you are offered a job with Amazon upon graduation.Your starting salary will be $70,000,which will put you in the 25 percent federal income tax bracket.The total amount of income taxes you pay is $13,530.Your average tax rate is approximately

Accepted Answer

The average tax rate is calculated by dividing the total taxes paid by the total income. $13,530 / $70,000 = 0.193, or 19.3 percent.

Question 12

Some people argue that social insurance taxes should be increased to remedy the fiscal problems faced by Social Security.What is a potential unintended consequence of this proposed solution?

Accepted Answer

The answer of Some people argue that social insurance taxes...

Question 13

A progressive income tax system is one in which

Accepted Answer

A progressive income tax system is one in which tax rates increase as earned income increases. This is based on the principle of ability to pay, meaning that those who have higher incomes can afford to pay more taxes, and those who have lower incomes should not be burdened with high taxes.

Question 14

Suppose you return to college and earn an MBA,after which you get an upper-management position with Yum! Brands.If the tax rates are the same as in 2016 and your starting salary is $125,000,how much will you owe in federal social insurance taxes?

Accepted Answer

The correct answer is A because the federal social insurance taxes are 6.2% for Social Security and 1.45% for Medicare, for a total of 7.65%. $125,000 * 7.65% = $9,562.50 in federal social insurance taxes.

Question 15

A marginal tax rate is

Accepted Answer

A marginal tax rate is the tax rate paid on a worker's next dollar of income. In other words, it is the tax rate that applies to each additional unit of income earned. This is important to know for making decisions about working additional hours or taking on extra income, because it helps individuals understand how much additional income will actually end up in their pockets after taxes.

Question 16

If policymakers are concerned about the unequal distribution of income within society,then they should prefer a ________ tax system.

Accepted Answer

A progressive income tax system is designed to tax individuals with higher incomes at higher rates than those with lower incomes, resulting in a more equal distribution of income in society. This type of tax system is preferred by policymakers concerned with income inequality. A regressive income tax system, on the other hand, taxes lower-income individuals at higher rates than higher-income individuals, exacerbating income inequality. A consumption tax system also tends to be regressive, as it taxes a larger proportion of income from lower-income individuals who must spend a higher percentage of their income on consumption. A proportional income tax system taxes all individuals at the same rate, regardless of income, which can also contribute to income inequality. A per capita tax system simply charges every individual the same flat tax amount, which does not take into account income levels or ability to pay.

Question 17

Suppose you use your entrepreneurial spirit and economics training to start your own business.In your first year of work,you are able to earn $58,000 in gross income.What is the total amount of social insurance taxes you owe the federal government?

Accepted Answer

The self-employment tax rate is 15.3%, which includes 12.4% for Social Security and 2.9% for Medicare. For a gross income of $58,000, the total social insurance taxes owed would be $58,000 * 15.3% = $8,874.00.

Question 18

Suppose you land a job with Google right out of college.Your economics training is very valuable to them,so you receive a starting annual salary of $65,000.What is the total amount of social insurance taxes for which you will be responsible after your first year of work?

Accepted Answer

Social insurance taxes include Social Security and Medicare. Social Security tax is 6.2% on the first $160,200 of income, and Medicare tax is 1.45% on all income. For a $65,000 salary, Social Security tax is $4,030 (6.2% of $65,000) and Medicare tax is $942.50 (1.45% of $65,000), totaling $4,972.50.

Question 19

Suppose you are offered a $5,000 raise at work.Your current income tax rate is 25 percent.Your marginal income tax rate is 28 percent.Your average tax rate is 20 percent.The additional income tax you owe to the federal government (assuming you stay in the same rate bracket)if you accept the job will be

Accepted Answer

The additional income you will be receiving is $5,000. 
Your average tax rate is 20%, so you will owe $1,000 in income tax on this additional income. 
Your marginal tax rate is 28%, which means any additional income you earn will be taxed at this rate. 
Therefore, the additional income tax you owe on the $5,000 raise is ($5,000 x 28%) - ($5,000 x 25%) = $1,400 - $1,250 = $150.
So, the total income tax you owe on the additional $5,000 raise is $1,000 + $150 = $1,150. 
Therefore, the best choice would be to accept the job offer as the raise will still result in a net income increase of $3,850 after accounting for the additional income tax.

Question 20

Refer to the following table to answer the following questions: 
-Using the table,what is the average tax rate for someone who makes $67,000 per year?

Accepted Answer

The average tax rate for someone who makes $67,000 per year is 19.1 percent. This is calculated by dividing the total amount of taxes paid ($12,833) by the total income ($67,000) and multiplying by 100.

Quiz 28: Federal Budgets: the Tools of Fiscal Policy