Question 1

Suppose that the government taxes income in the following fashion: 20 percent of the first $50,000, 40 percent of the next $50,000, and 60 percent of all income over $100,000. Marshall earns $200,000, and Lily earns $600,000. Which of the following statements is correct?
A)Marshall's marginal tax rate is higher than Lily's marginal tax rate.
B)Marshall's average tax rate is higher than his marginal tax rate.
C)Lily's average tax rate is higher than her marginal tax rate.
D)Lily's average tax rate is higher than Marshall's average tax rate.

Accepted Answer

Lily's income places her in the highest tax bracket for a portion of her income, which increases her average tax rate compared to Marshall, who has a portion of his income taxed at lower rates. Marshall's marginal tax rate (the rate on the last dollar earned) is the same as Lily's if we only consider the given tax brackets, but Lily's average tax rate (total tax paid divided by total income) is higher because a larger portion of her income is subject to the highest tax rate.

Question 2

Suppose the government imposes a tax of 10 percent on the first $40,000 of income and 20 percent on all income above $40,000. What is the average tax rate when income is $50,000?
A)20 percent
B)15 percent
C)12 percent
D)10 percent

Accepted Answer

The answer of Suppose the government imposes a tax of...

Question 3

Table 12-3
The following table presents the total tax liability for an unmarried taxpayer under four different tax schedules for the income levels shown.
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-Refer to Table 12-3. For an individual with $200,000 in taxable income, which tax schedule has the lowest average tax rate?
A)Tax Schedule A
B)Tax Schedule B
C)Tax Schedule C
D)Tax Schedule D

Accepted Answer

Tax Schedule C has the lowest average tax rate for an individual with $200,000 in taxable income, as it likely has lower marginal rates or a more favorable tax bracket structure compared to the other schedules.

Question 4

Scenario 12-3
A taxpayer faces the following tax rates on her income:
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 20 percent of the first $\$ 40,000$ of her income;
30 percent of all her income above $\$ 40,000$.
-Refer to Scenario 12-3. At what level of income would the taxpayer's marginal tax rate be 30 percent and her average tax rate be 25 percent?
A)$20,000
B)$40,000
C)$60,000
D)$80,000

Accepted Answer

To have an average tax rate of 25%, the taxpayer's total tax divided by her total income must equal 0.25. If her income is $80,000, she pays $8,000 on the first $40,000 (20%) and $12,000 on the next $40,000 (30%), totaling $20,000 in taxes. $20,000/$80,000 = 0.25, so her average tax rate is 25%. At $80,000, her marginal tax rate is 30% because the next dollar earned would be taxed at 30%.

Question 5

If the government imposes a tax of $3,000 on everyone, the tax would be
A)an income tax.
B)a consumption tax.
C)a lump-sum tax.
D)a marginal tax.

Accepted Answer

A lump-sum tax is a fixed amount of tax that individuals are required to pay, regardless of their income, consumption, or any other factors. It does not change with the taxpayer's income level or economic activity, making option C the correct answer.

Question 6

If your income is $40,000 and your income tax liability is $5,000, your
A)marginal tax rate is 8 percent.
B)average tax rate is 8 percent.
C)marginal tax rate is 12.5 percent.
D)average tax rate is 12.5 percent.

Accepted Answer

The average tax rate is calculated by dividing the total tax liability by the total income. Here, $5,000 / $40,000 = 0.125 or 12.5 percent.

Question 7

If your income is $40,000 and your income tax liability is $5,000, your marginal tax rate is
A)8 percent.
B)12.5 percent.
C)20 percent.
D)unknown.We do not have enough information to answer this question.

Accepted Answer

The marginal tax rate is the rate at which your last dollar of income is taxed, which cannot be determined solely from total income and total tax liability. Additional information about the tax brackets and how income is distributed across those brackets is needed.

Question 8

In the United States, the marginal tax rate on individual federal income tax
A)decreases as income increases.
B)increases as income increases.
C)is constant at all income levels.
D)applies only to payroll taxes.

Accepted Answer

The United States employs a progressive tax system for individual federal income taxes, meaning the marginal tax rate increases as income increases. This system is designed to tax higher income levels at higher rates.

Question 9

A person's marginal tax rate equals
A)her tax obligation divided by her average tax rate.
B)the increase in taxes she would pay as a percentage of the rise in her income.
C)her tax obligation divided by her income.
D)the increase in taxes if her average tax rate were to rise by 1percent.

Accepted Answer

The marginal tax rate is the rate at which your last dollar of income is taxed, essentially the percentage of tax applied to your income for each tax bracket in which you qualify. It represents the increase in taxes paid for every additional dollar earned as income.

Question 10

Sue earns income of $80,000 per year. Her average tax rate is 50 percent. Sue paid $5,000 in taxes on the first $30,000 she earned. What was the marginal tax rate on the first $30,000 she earned, and what was the marginal tax rate on the remaining $50,000?
A)6.25 percent and 50.00 percent, respectively
B)10.00 percent and 70.00 percent, respectively
C)16.67 percent and 60.00 percent, respectively
D)16.67 percent and 70.00 percent, respectively

Accepted Answer

The marginal tax rate on the first $30,000 is calculated by dividing the taxes paid ($5,000) by the income earned ($30,000), which gives 16.67 percent. For the remaining $50,000, since the average tax rate is 50 percent and Sue earns $80,000, she pays a total of $40,000 in taxes. Subtracting the $5,000 paid on the first $30,000, she pays $35,000 on the remaining $50,000, resulting in a marginal tax rate of 70 percent for the remaining income.

Question 11

If we want to gauge the sacrifice made by a taxpayer, we should use the
A)average tax rate.
B)marginal tax rate.
C)lump-sum tax rate.
D)sales tax rate.

Accepted Answer

The average tax rate, which is the total tax paid divided by total income, best measures the sacrifice made by a taxpayer because it reflects the proportion of their income that is paid in taxes.

Question 12

Scenario 12-3
A taxpayer faces the following tax rates on her income:
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 20 percent of the first $\$ 40,000$ of her income;
30 percent of all her income above $\$ 40,000$.
-Refer to Scenario 12-3. The taxpayer faces
A)an average tax rate of 30 percent when her income is $40,000.
B)an average tax rate of 23 percent when her income is $60,000.
C)a marginal tax rate of 30 percent when her income rises from $20,000 to $20,001.
D)a marginal tax rate of 50 percent when her income rises from $40,000 to $60,000.

Accepted Answer

At an income of $60,000, the taxpayer pays 20% on the first $40,000 ($8,000) and 30% on the next $20,000 ($6,000), totaling $14,000 in taxes. The average tax rate is $14,000 / $60,000 = 23.33%, rounded to 23%.

Question 13

Scenario 12-3
A taxpayer faces the following tax rates on her income:
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 20 percent of the first $\$ 40,000$ of her income;
30 percent of all her income above $\$ 40,000$.
-Refer to Scenario 12-3. The taxpayer faces a marginal tax rate of
A)30 percent when her income rises from $20,000 to $20,001.
B)20 percent when her income rises from $20,000 to $20,001.
C)20 percent when her income rises from $60,000 to $60,001.
D)0 percent when her income rises from $20,000 to $20,001.

Accepted Answer

The marginal tax rate is the rate at which the last dollar of income is taxed. When the taxpayer's income rises from $20,000 to $20,001, she is still within the first $40,000 of income, which is taxed at a 20 percent rate.

Question 14

If we want to gauge how much the income tax system distorts incentives, we should use the
A)average tax rate.
B)ability-to-pay principle.
C)total tax revenue collected.
D)marginal tax rate.

Accepted Answer

The marginal tax rate is the correct choice because it measures the rate at which the last dollar of income is taxed, thus directly affecting individuals' incentives to earn additional income. It is the most relevant rate when considering the distortion of economic behavior, such as work effort or investment, due to taxation.

Question 15

Suppose the government imposes a tax of 10 percent on the first $40,000 of income and 20 percent on all income above $40,000. What are the tax liability and the marginal tax rate for a person whose income is $50,000?
A)12 percent and 20 percent, respectively
B)12 percent and $50,000, respectively
C)$6,000 and 12 percent, respectively
D)$6,000 and 20 percent, respectively

Accepted Answer

The tax liability is calculated as 10% of the first $40,000 ($4,000) plus 20% of the remaining $10,000 ($2,000), totaling $6,000. The marginal tax rate, which is the rate applied to the last dollar earned, is 20% for income above $40,000.

Question 16

Suppose that the government taxes income in the following fashion: 30 percent of the first $20,000, 50 percent of the next $30,000, and 60 percent of all income over $50,000. Ted earns $40,000, and Robin earns $60,000. Which of the following statements is correct?
A)Ted's marginal tax rate is 60 percent, and his average tax rate is 50 percent.
B)Ted's marginal tax rate is 50 percent, and his average tax rate is 40 percent.
C)Robin's marginal tax rate is 50 percent, and her average tax rate is 45 percent.
D)Robin's marginal tax rate is 60 percent, and her average tax rate is 40 percent.

Accepted Answer

Ted's marginal tax rate is 50 percent because his income falls in the second bracket ($20,001 to $50,000). His average tax rate is calculated as total tax paid ($6,000 + $10,000 = $16,000) divided by his income ($40,000), which is 40 percent.

Question 17

Table 12-4
United States Income Tax Rates for a Single Individual, 2017 and 2018.
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-Refer to Table 12-4. Bill is a single person whose taxable income is $35,000 a year. What happened to his average tax rate between 2017 and 2018?
A)It decreased.
B)It increased.
C)It did not change.
D)You do not have enough information to answer this question.

Accepted Answer

The Tax Cuts and Jobs Act of 2017 lowered tax rates for many taxpayers beginning in 2018. Therefore, if Bill's taxable income remained the same ($35,000), his average tax rate likely decreased due to the reduced tax rates.

Question 18

Under a regressive tax system, the marginal tax rate for high income taxpayers is
A)higher than the marginal tax rate for low income taxpayers.
B)the same as the marginal tax rate for low income taxpayers.
C)lower than the marginal tax rate for low income taxpayers.
D)is unknown relative to the low income tax payer.

Accepted Answer

In a regressive tax system, the marginal tax rate decreases as the income level increases, meaning high income taxpayers face a lower marginal tax rate compared to low income taxpayers.

Question 19

The income tax requires that taxpayers pay 10percent on the first $40,000 of income and 20 percent on all income over $40,000. Karen paid $6,000 in taxes. What were her marginal and average tax rates?
A)20 percent and 12 percent, respectively
B)20 percent and 15 percent, respectively
C)10 percent and 12 percent respectively
D)10 percent and 15 percent respectively

Accepted Answer

Karen's marginal tax rate is 20 percent because this is the rate she pays on any income over $40,000. To find her average tax rate, we calculate the total tax paid ($6,000) as a percentage of her total income. Since she paid $6,000, which is $2,000 more than what she would have paid on the first $40,000 (10% of $40,000 = $4,000), she must have earned $10,000 at the 20% rate (since $2,000 is 20% of $10,000). Therefore, her total income was $50,000 ($40,000 + $10,000), and her average tax rate is $6,000/$50,000 = 12%.

Question 20

If your income is $50,000, your income tax liability is $10,000, and you paid $0.25 in taxes on the last dollar you earned, your
A)marginal tax rate is 20 percent.
B)average tax rate is 5 percent.
C)marginal tax rate is 25 percent.
D)average tax rate is 25 percent.

Accepted Answer

The marginal tax rate is the rate paid on the last dollar earned, which is $0.25 or 25%.

Quiz 12: The Design of the Tax System

Suppose that the government taxes income in the following fashion: 20 percent of the first $50,000, 40 percent of the next $50,000, and 60 percent of all income over $100,000. Marshall earns $200,000, and Lily earns $600,000. Which of the following statements is correct?

Suppose the government imposes a tax of 10 percent on the first $40,000 of income and 20 percent on all income above $40,000. What is the average tax rate when income is $50,000?

Table 12-3 The following table presents the total tax liability for an unmarried taxpayer under four different tax schedules for the income levels shown. -Refer to Table 12-3. For an individual with $200,000 in taxable income, which tax schedule has the lowest average tax rate?

If the government imposes a tax of $3,000 on everyone, the tax would be

If your income is $40,000 and your income tax liability is $5,000, your

If your income is $40,000 and your income tax liability is $5,000, your marginal tax rate is

In the United States, the marginal tax rate on individual federal income tax

A person's marginal tax rate equals

Sue earns income of $80,000 per year. Her average tax rate is 50 percent. Sue paid $5,000 in taxes on the first $30,000 she earned. What was the marginal tax rate on the first $30,000 she earned, and what was the marginal tax rate on the remaining $50,000?

If we want to gauge the sacrifice made by a taxpayer, we should use the

Scenario 12-3 A taxpayer faces the following tax rates on her income: 20 percent of the first $\$ 40,000$ of her income; 30 percent of all her income above $\$ 40,000$ . -Refer to Scenario 12-3. The taxpayer faces

Scenario 12-3 A taxpayer faces the following tax rates on her income: 20 percent of the first $\$ 40,000$ of her income; 30 percent of all her income above $\$ 40,000$ . -Refer to Scenario 12-3. The taxpayer faces a marginal tax rate of

If we want to gauge how much the income tax system distorts incentives, we should use the

Suppose the government imposes a tax of 10 percent on the first $40,000 of income and 20 percent on all income above $40,000. What are the tax liability and the marginal tax rate for a person whose income is $50,000?

Suppose that the government taxes income in the following fashion: 30 percent of the first $20,000, 50 percent of the next $30,000, and 60 percent of all income over $50,000. Ted earns $40,000, and Robin earns $60,000. Which of the following statements is correct?

Table 12-4 United States Income Tax Rates for a Single Individual, 2017 and 2018. -Refer to Table 12-4. Bill is a single person whose taxable income is $35,000 a year. What happened to his average tax rate between 2017 and 2018?

Under a regressive tax system, the marginal tax rate for high income taxpayers is

The income tax requires that taxpayers pay 10percent on the first $40,000 of income and 20 percent on all income over $40,000. Karen paid $6,000 in taxes. What were her marginal and average tax rates?

If your income is $50,000, your income tax liability is $10,000, and you paid $0.25 in taxes on the last dollar you earned, your