Question 1

The flypaper theory of tax incidence

Accepted Answer

The flypaper theory of tax incidence assumes that taxes levied on an economic activity will stick to that activity and will not be passed on to other economic activities. However, this theory ignores the indirect effects of taxes, such as changes in consumer behavior and producer responses, which could lead to a shift in the incidence of the tax.

Question 2

Which of the following is not a way that a corporate tax on the income of U.S.car companies will affect markets?

Accepted Answer

The answer of Which of the following is not a...

Question 3

Many economists believe that

Accepted Answer

Many economists believe that the burden of the corporate income tax is borne by workers and customers, as it can lead to higher prices and lower wage growth. This means that the corporate income tax can be seen as inefficient and regressive, as it disproportionately affects low-income individuals who are more likely to be workers and consumers. Horizontal equity refers to the idea that individuals in similar situations should be taxed equally, which is not necessarily satisfied by the corporate income tax. Therefore, option A is incorrect. Additionally, the corporate income tax can distort the incentives of businesses, which may choose to invest in tax-friendly jurisdictions or engage in tax avoidance strategies. This means that option B is incorrect as well. While it is possible that the corporate income tax is more efficient than the personal income tax in some contexts, the overall consensus is that both taxes have their own advantages and disadvantages, making option C incorrect.

Question 4

Suppose that the government collected taxes in the following fashion: people who earn less than $50,000 pay 25 percent in taxes,people who earn between $50,000 and $100,000 pay 35 percent in taxes,people who earn between $100,000 and $200,000 pay 30 percent in taxes,and people who earn more than $200,000 pay 28 percent in taxes.Which of the following statements is correct?

Accepted Answer

A tax system is progressive if the average tax rate increases as the taxpayer's income increases. In this case, people who earn less than $50,000 pay 25 percent, which is a lower rate than people who earn between $50,000 and $100,000 (35 percent), so the tax system is progressive for income levels less than $50,000. However, people who earn between $100,000 and $200,000 pay a lower rate (30 percent) than those who earn between $50,000 and $100,000, so the system becomes regressive in that range. Finally, people who earn more than $200,000 pay a lower rate (28 percent) than those who earn between $100,000 and $200,000, making the system even more regressive for higher incomes. Thus, the tax system is progressive for income levels less than $100,000 and regressive for income levels above $100,000.

Question 5

Which tax system requires higher-income taxpayers to have lower tax rates,even though they pay a larger amount of tax when compared to lower-income taxpayers?

Accepted Answer

The answer of Which tax system requires higher-income taxpayers to...

Question 6

Which tax system requires higher-income taxpayers to pay a higher percentage of their income in taxes?

Accepted Answer

A progressive tax system requires higher-income taxpayers to pay a higher percentage of their income in taxes. This is because the tax rate increases as the taxable income of the taxpayer increases.

Question 7

When the government levies a tax on a corporation,

Accepted Answer

When the government levies a tax on a corporation, the corporation is more like a tax collector than a taxpayer. This is because corporations can pass on the burden of the tax to consumers by increasing the price of their products or to their shareholders by reducing dividends. Therefore, the actual burden of the tax may be spread among various stakeholders, and not just borne by the corporation alone.

Question 8

You are trying to design a tax system that will simultaneously achieve both of the following goals: 1)two people with the same total income would pay taxes of the same amount,and 2)a high-income person would pay a higher fraction of income in taxes than a low-income person.Which of the following tax systems could achieve both goals?

Accepted Answer

A progressive tax system is designed to tax higher-income individuals at a higher percentage of their income than lower-income individuals. This achieves the second goal of the tax system. Additionally, if the progressive tax system is designed with a flat tax rate for all income levels, then two people with the same total income would pay taxes of the same amount, as required by the first goal. Therefore, a progressive tax system can achieve both goals of the tax system.

Question 9

Table 12-14
 
-Refer to Table 12-14.A lump-sum tax is illustrated by tax

Accepted Answer

The answer of Table 12-14
 
-Refer to Table 12-14.A lump-sum...

Question 10

Table 12-14
 
-Refer to Table 12-14.A progressive tax is illustrated by tax

Accepted Answer

The answer of Table 12-14
 
-Refer to Table 12-14.A progressive...

Question 11

Which of the following statements is correct?

Accepted Answer

A general sales tax on food is considered regressive because low-income taxpayers spend a larger proportion of their income on food compared to high-income taxpayers. This means that a general sales tax on food would disproportionately affect low-income individuals, as a higher percentage of their income would go towards paying the tax.

Question 12

Table 12-14
 
-Refer to Table 12-14.A regressive tax is illustrated by tax

Accepted Answer

The answer of Table 12-14
 
-Refer to Table 12-14.A regressive...

Question 13

Suppose the government levies a "fat tax" on naturally-sweetened carbonated beverages to try to reduce the number of overweight children.If the tax revenues pay for the health problems of overweight children,the tax would satisfy the

Accepted Answer

The "benefits principle" states that those who receive the benefits from a government program or service should pay for it. In this case, the "fat tax" is intended to reduce the number of overweight children and therefore benefit society as a whole. The tax revenues being used to pay for the health problems of overweight children also aligns with the benefits principle, as those who consume the taxed products are more likely to incur such health problems.

Question 14

When the marginal tax rate equals the average tax rate,the tax is

Accepted Answer

When the marginal tax rate equals the average tax rate, each additional unit of income is subject to the same tax rate as the previous unit. This makes the tax proportional.

Question 15

You are trying to design a tax system that will simultaneously achieve both of the following goals: 1)a person with no income would pay no taxes,and 2)a high-income person would pay a higher fraction of income in taxes than a low-income person.Which of the following statements is correct?

Accepted Answer

A progressive tax system would achieve both goals, as it would tax higher-income individuals at a higher rate than lower-income individuals, while also allowing for exemptions or deductions for those with little to no income. This way, those with no income would not be taxed at all, while those with higher incomes would pay a larger percentage of their income in taxes. A lump-sum tax and proportional tax would not be able to achieve the first goal, as they would require everyone to pay the same amount regardless of income. A regressive tax would not achieve the first goal and would actually contradict the second goal by taxing lower-income individuals at a higher rate than higher-income individuals.

Question 16

Who pays a corporate income tax?

Accepted Answer

The answer of Who pays a corporate income tax?
...

Question 17

If a tax takes a smaller fraction of income as income rises,it is

Accepted Answer

The answer of If a tax takes a smaller fraction...

Question 18

Table 12-14
 
-Refer to Table 12-14.A proportional tax is illustrated by tax

Accepted Answer

A proportional tax is a tax that takes the same percentage of income from all taxpayers, regardless of their income level. In Table 12-14, it can be observed that the tax paid by each individual is a constant percentage of their income. Therefore, option A represents a proportional tax.

Question 19

Table 12-15
 
-Refer to Table 12-15.The tax system is

Accepted Answer

The table shows that as income increases, the percentage of income paid in taxes also increases. This indicates a progressive tax system.

Question 20

When the marginal tax rate exceeds the average tax rate,the tax is

Accepted Answer

When the marginal tax rate exceeds the average tax rate, it means that the tax system is a progressive one. This is because as a person's income increases, they are pushed into higher tax brackets and have to pay a higher percentage of their income in taxes, thus creating a higher marginal tax rate. The average tax rate, on the other hand, is calculated by dividing total tax paid by total income, and will always be less than the marginal tax rate. This indicates that the tax system becomes more burdensome on higher income earners, which is a characteristic of a progressive tax system.

Quiz 12: The Design of the Tax System

The flypaper theory of tax incidence

Which of the following is not a way that a corporate tax on the income of U.S.car companies will affect markets?

Many economists believe that

Which tax system requires higher-income taxpayers to have lower tax rates,even though they pay a larger amount of tax when compared to lower-income taxpayers?

Which tax system requires higher-income taxpayers to pay a higher percentage of their income in taxes?

When the government levies a tax on a corporation,

Table 12-14 -Refer to Table 12-14.A lump-sum tax is illustrated by tax

Table 12-14 -Refer to Table 12-14.A progressive tax is illustrated by tax

Which of the following statements is correct?

Table 12-14 -Refer to Table 12-14.A regressive tax is illustrated by tax

Suppose the government levies a "fat tax" on naturally-sweetened carbonated beverages to try to reduce the number of overweight children.If the tax revenues pay for the health problems of overweight children,the tax would satisfy the

When the marginal tax rate equals the average tax rate,the tax is

You are trying to design a tax system that will simultaneously achieve both of the following goals: 1) a person with no income would pay no taxes,and 2) a high-income person would pay a higher fraction of income in taxes than a low-income person.Which of the following statements is correct?

Who pays a corporate income tax?

If a tax takes a smaller fraction of income as income rises,it is

Table 12-14 -Refer to Table 12-14.A proportional tax is illustrated by tax

Table 12-15 -Refer to Table 12-15.The tax system is

When the marginal tax rate exceeds the average tax rate,the tax is