Question 1

Suppose the tax rate on the first $20,000 income is 0 percent;10 percent on the next $20,000 earned; and 20 percent on any additional income earned. A person earning $35,000 pays an income tax of

Accepted Answer

The first $20,000 is not taxed, so the taxable income is $15,000. 
10% of $20,000 is $2,000, leaving $15,000. 
20% of $15,000 is $3,000. 
So the total tax paid is $2,000 + $3,000 = $5,000. However, since the person only earned $35,000, they don't have to pay tax on the last $15,000. 
Therefore, the tax actually paid is $2,000, which is answer B.

Question 2

In a progressive tax system, if a person moves from one income bracket to a higher income bracket

Accepted Answer

In a progressive tax system, as a person moves to a higher income bracket, both the marginal tax rate (the tax rate on the next dollar of income) and the average tax rate (total tax paid divided by total income) increase. This is because higher income is taxed at higher rates.

Question 3

Revenue collected through the Federal Insurance Contributions Act is used to fund

Accepted Answer

Revenue collected through the Federal Insurance Contributions Act is specifically used to fund Social Security payments.

Question 4

The Federal Insurance Contributions Act taxes are paid to fund

Accepted Answer

The answer of The Federal Insurance Contributions Act taxes are...

Question 5

Which of the following statements about Medicare taxes is TRUE?

Accepted Answer

Self-employed individuals pay the full Medicare tax rate themselves, as they do not have an employer to share the burden.

Question 6

Suppose a high-income individual, subject to a 15 percent capital gains tax rate, sells 100 shares of company X and makes a loss of $500. She also sells 100 shares of company Y and makes a profit of $1,200. How much in capital gains tax will she pay?

Accepted Answer

The individual has a net gain of $700 ($1,200 profit - $500 loss). The capital gains tax on $700 at a 15% rate is $105.

Question 7

The alternative minimum tax has become an added tax burden on many upper middle class families because

Accepted Answer

The alternative minimum tax is not indexed to inflation, which means that over time, more and more taxpayers are subject to it, even though its original intent was to target only the very wealthy. This has resulted in many upper middle class families being burdened with the AMT, despite not being the intended targets of the tax.

Question 8

Workers bear at least a majority, if not all, of the burden of the employers' share of FICA and Medicare tax payments because

Accepted Answer

The answer of Workers bear at least a majority, if...

Question 9

Taxpayers in the United States for the year 2010 received individual and dependent exemptions, each worth

Accepted Answer

In 2010, the IRS set the personal and dependent exemption amount at $3,650 for taxpayers in the United States.

Question 10

The legislation Congress passed in 1969 to make sure that the rich pay at least some income taxes was called the

Accepted Answer

The legislation Congress passed in 1969 to make sure that the rich pay at least some income taxes was called the alternative minimum tax.

Question 11

The U.S. income tax system is

Accepted Answer

The U.S. income tax system is progressive, meaning that the tax rate increases as the taxable amount increases. Those with higher incomes pay a higher percentage of their income in taxes, while those with lower incomes pay a lower percentage.

Question 12

The FICA tax burden is

Accepted Answer

The answer of The FICA tax burden is
...

Question 13

Suppose a high-income individual, subject to a 15 percent capital gains tax rate, sells 100 shares of company X for a price of $9 per share (purchased at $10 each) and 500 shares of company Y for a price of $51 per share (purchased at $50 each). How much in capital gains tax will he pay?

Accepted Answer

The answer of Suppose a high-income individual, subject to a...

Question 14

The tax rate on an additional dollar of income is the

Accepted Answer

The tax rate on an additional dollar of income is the marginal tax rate. It is the rate at which the next dollar of income is taxed.

Question 15

Because the alternative minimum tax (AMT) is not indexed to inflation

Accepted Answer

The lack of indexing to inflation means that as incomes rise with inflation, more taxpayers will exceed the AMT exemption and become subject to the tax. Therefore, over time, more American families have become subject to the AMT.

Question 16

Which statement about individual income taxes in the United States is TRUE?

Accepted Answer

Marginal tax rates in the U.S. have become flatter and lower over time compared to historical rates, which were once as high as 91%.

Question 17

How much FICA tax does your employer pay on the taxable portion of your income?

Accepted Answer

Employers are required to pay a FICA tax rate of 6.2 percent on the taxable portion of an employee's income for Social Security. Additionally, employers must pay a FICA tax rate of 1.45 percent for Medicare, bringing the total rate to 7.65 percent. However, employees also contribute to FICA taxes through paycheck deductions. The total FICA tax rate for employees is also 7.65 percent (6.2 percent for Social Security and 1.45 percent for Medicare).

Question 18

Suppose the tax rate on the first $20,000 income is 0 percent; 10 percent on the next $20,000 earned; and 20 percent on any additional income earned. The marginal tax rate for a person earning $30,000 is

Accepted Answer

The marginal tax rate is the rate applied to the last dollar earned. For someone earning $30,000, the last $10,000 falls into the 10 percent bracket.

Question 19

Suppose the tax rate on the first $20,000 income is 0 percent; 10 percent on the next $20,000 earned; and 20 percent on any additional income earned. The average tax rate for a person earning $35,000 is

Accepted Answer

First $20,000 = 0% tax
Next $15,000 = 10% tax
Total tax paid = ($20,000 x 0%) + ($15,000 x 10%) = $1,500
Average tax rate = Total tax paid / Total income = $1,500 / $35,000
= 4.3%

Question 20

The purpose of FICA taxes is to fund

Accepted Answer

FICA taxes are used to fund Social Security payments to retired and disabled individuals. They also fund Medicare, which provides healthcare for elderly individuals.

Quiz 34: The Federal Reserve System and Open Market Operations