Question 1

Al believes that SUVs have negative social and environmental effects because of their increased carbon monoxide emissions. He proposes eliminating sales taxes on smaller automobiles in favor of higher sales taxes levied on SUVs. Al performs somecalculations and comes to the conclusion that based on the current number of SUVs owned in the U.S. exactly the same amount of total sales tax will be collected under his reformed system. Which of the following concepts explains why Al's idea may not work?

Accepted Answer

The substitution effect suggests that if the price of SUVs increases due to higher sales taxes, consumers may switch to buying other larger vehicles, such as trucks or vans, that are not subject to the same tax increase but still have negative social and environmental effects. This means that Al's proposed higher sales taxes on SUVs may not achieve his desired outcome of reducing carbon monoxide emissions.

Question 2

If Susie earns $750,000 in taxable income, how much tax will she pay as a single taxpayer for year 2017? (Use tax rate schedule.)

Accepted Answer

For 2017, the tax brackets for a single filer are: 10% on income up to $9,325; 15% on income over $9,325 to $37,950; 25% on income over $37,950 to $91,900; 28% on income over $91,900 to $191,650; 33% on income over $191,650 to $416,700; 35% on income over $416,700 to $418,400; and 39.6% on income over $418,400. Calculating the tax for each bracket and summing them gives $252,818.85.

Question 3

Which of the following is true regarding tax-advantaged assets?

Accepted Answer

Tax-advantaged assets are often subject to implicit taxes, which are the reduced returns due to their tax-favored status.

Question 4

The concept of tax sufficiency:

Accepted Answer

Tax sufficiency suggests that a government should consider the income and substitution effects when changing tax rates, estimate how taxpayers will respond to changes in the current tax structure, and conduct tax forecasting in order to ensure that tax revenue is sufficient to fund government spending. Therefore, all of the choices are correct.

Question 5

Manny, a single taxpayer, earns $65,000 per year in taxable income and an additional $12,00704)per year in city of Boston bonds.If Manny earns an additional $35,000 in taxable income in year 2017, what is his marginal tax rate on this income? (Use tax rate schedule.)

Accepted Answer

Manny's taxable income in 2017 is $65,000 + $35,000 = $100,000. His marginal tax rate on this income is 25%.

Question 6

Geronimo files his tax return as a head of household for year 2017. If his taxable income is $72,000, what is his average tax rate? (Use tax rate schedule.)

Accepted Answer

The answer of Geronimo files his tax return as a...

Question 7

Which of the following is true regarding real property taxes and personal property taxes?

Accepted Answer

Real property taxes are generally easier to administer than personal property taxes because real property is immovable and its location and value are easier to assess and track compared to personal property, which can be moved and is more difficult to assess consistently.

Question 8

Leonardo earns $80,000 of taxable income. He also has $15,000 in city of Tulsa bonds. His 7w8i)fe, Theresa, earns $50,000 of taxable income.What is Leonardo and Theresa's effective tax rate for year 2017? (Use tax rate schedule.)

Accepted Answer

The answer of Leonardo earns $80,000 of taxable income. He...

Question 9

Which of the following federal government actions would make sense if a tax system fails to provide sufficient tax revenue?

Accepted Answer

If a tax system fails to provide sufficient tax revenue, issuing treasury bonds can help make up for the shortfall, but cutting funding to various federal projects may also be necessary in order to balance the budget. Simply increasing federal spending or cutting funding without issuing bonds would not address the revenue problem. Therefore, B is the best choice.

Question 10

Leonardo earns $80,000 of taxable income. He also has $15,000 in city of Tulsa bonds. His 7w9i)fe, Theresa, earns $50,000 of taxable income.How much money would Leonardo and Theresa save if they file jointly instead of separately for year 2017? (Use tax rate schedule.)

Accepted Answer

The answer of Leonardo earns $80,000 of taxable income. He...

Question 11

Manny, a single taxpayer, earns $65,000 per year in taxable income and an additional $12,00703)per year in city of Boston bonds.What is Manny's current marginal tax rate for year 2017? (Use tax rate schedule.)

Accepted Answer

The answer of Manny, a single taxpayer, earns $65,000 per...

Question 12

Leonardo earns $80,000 of taxable income. He also has $15,000 in city of Tulsa bonds. His 7w7i)fe, Theresa, earns $50,000 of taxable income.If Leonardo and his wife file married filing jointly in 2017, what would be their average tax rate? (Use tax rate schedule.)

Accepted Answer

To find the average tax rate, we first need to calculate their total taxable income. Leonardo has $80,000 taxable income and Theresa has $50,000 taxable income, so their total taxable income is $130,000.

Next, we need to find their total tax liability. Using the 2017 tax rate schedule for married filing jointly, we have:

- The first $18,650 is taxed at 10% = $1,865
- Income between $18,651 and $75,900 is taxed at 15% = $10,912.50 ($75,900 - $18,650 = $57,250, which is the amount subject to the 15% tax rate)
- Income between $75,901 and $153,100 is taxed at 25% = $24,925 ($130,000 - $75,900 = $54,100, which is the amount subject to the 25% tax rate)

Adding up those amounts, we get a total tax liability of $37,702.50.

Finally, we divide the total tax liability by the total taxable income to get the average tax rate:

($37,702.50 / $130,000) x 100% = 28.93%

However, this is the marginal tax rate - the rate at which their last dollar of income is taxed. To find the average tax rate, we need to take into account the fact that their income is taxed at different rates. We can use a weighted average to do this:

- The first $18,650 is taxed at 10%, so the total tax on that portion is 10% x $18,650 = $1,865
- The next $36,250 ($55,900 - $18,650) is taxed at 15%, so the total tax on that portion is 15% x $36,250 = $5,437.50
- The remaining $74,100 ($130,000 - $55,900 - $18,650) is taxed at 25%, so the total tax on that portion is 25% x $74,100 = $18,525

Adding up those amounts, we get a total tax liability of $25,827.50.

Finally, we divide the total tax liability by the total taxable income to get the average tax rate:

($25,827.50 / $130,000) x 100% = 19.87%

Therefore, the correct answer is B) 18.44% (which is the closest answer).

Question 13

Employers often withhold federal income taxes directly from worker's paychecks. This is an example of which principle in practice?

Accepted Answer

This is an example of the convenience principle, which states that tax collection should be convenient for taxpayers and government administrators. By withholding taxes directly from worker's paychecks, it is more convenient for taxpayers to pay their taxes in smaller increments throughout the year rather than in one lump sum at the end of the year. It is also more convenient for the government to collect taxes regularly throughout the year rather than having to wait until tax season to collect all the owed taxes.

Question 14

Leonardo, who is married but files separately, earns $80,000 of taxable income. He also has75)$15,000 in city of Tulsa bonds. His wife, Theresa, earns $50,000 of taxable income.If Leonardo earned an additional $30,000 of taxable income this year, what would be the marginal tax rate on the extra income for year 2017? (Use tax rate schedule.)

Accepted Answer

Based on the tax rate schedule for married individuals filing separately in 2017, Leonardo's taxable income of $80,000 puts him in the 25% tax bracket. If he earns an additional $30,000, his total taxable income would be $110,000 which puts him in the 28% tax bracket. Therefore, the marginal tax rate on the extra $30,000 of taxable income would be 28%.

Question 15

The substitution effect:

Accepted Answer

The substitution effect refers to the change in consumption patterns due to a change in relative prices, not directly related to tax revenue or static forecasting.

Question 16

Which of the following would not be a failure of the horizontal equity concept?

Accepted Answer

Horizontal equity means that taxpayers with similar ability to pay should owe the same amount in taxes. In option A, the difference in estate tax is due to a difference in estate value, not a failure of horizontal equity.

Question 17

Leonardo, who is married but files separately, earns $80,000 of taxable income. He also has76)$15,000 in city of Tulsa bonds. His wife, Theresa, earns $50,000 of taxable income.If Leonardo instead had $30,000 of additional tax deductions for year 2017, his marginal tax rate on the deductions would be: (Use tax rate schedule.)

Accepted Answer

Using the tax rate schedule for married filing separately in 2017, Leonardo's taxable income of $80,000 puts him in the 25% tax bracket. This means that any additional tax deductions would be taxed at a marginal rate of 25%.

If Leonardo had $30,000 of additional tax deductions, his taxable income would be reduced to $50,000. This would move him into the 15% tax bracket, which has a marginal tax rate of 15%. Therefore, his marginal tax rate on the additional deductions would be 15.00%.

However, since Theresa earns $50,000 of taxable income, the couple's combined income would still put them in the 25% tax bracket. This means that any savings from Leonardo's additional deductions would be offset by the fact that Theresa would be taxed at a higher rate. Therefore, the overall tax savings for Leonardo would be limited.

Thus, the best choice is B, 25.35%, since it reflects the total tax rate resulting from the combination of Leonardo's income and his wife's income.

Question 18

Which of the following statements is true?

Accepted Answer

Municipal bond interest is exempt from federal income tax, but it may be subject to implicit tax, such as state or local taxes.

Question 19

Congress recently approved a new, smaller budget for the IRS. What taxation concept evaluates the cost of administering our tax law?

Accepted Answer

The taxation concept that evaluates the cost of administering our tax law is economy. This includes the cost of collecting taxes, enforcing tax laws, and providing taxpayer services. By approving a smaller budget for the IRS, Congress is evaluating the economy of administering our tax law.

Question 20

Which of the following principles encourages a vertically equitable tax system?

Accepted Answer

The ability to pay principle states that those who can afford to pay more taxes should do so, which creates a system that is vertically equitable. This principle aims to ensure that individuals with higher incomes pay a higher proportion of their income in taxes, while those with lower incomes pay less.

Quiz 1: An Introduction to Tax