Question 1

A progressive rate structure and a proportionate rate structure both result in vertical equity across taxpayers.

Accepted Answer

Both progressive and proportionate rate structures aim to achieve vertical equity by ensuring that taxpayers with higher incomes pay a larger share of their income in taxes compared to those with lower incomes.

Question 2

If a tax has a proportionate rate structure, a taxpayer's marginal rate and average rate are equal.

Accepted Answer

In a proportionate rate structure, the marginal rate and average rate are equal, meaning that all taxpayers pay the same percentage of their income as tax. Therefore, the statement is true.

Question 3

The theory of distributional justice is a rationale for a progressive income tax system.

Accepted Answer

The theory of distributional justice advocates for wealth and income to be distributed more equally across society. A progressive income tax system is a tool used to achieve this goal by taxing higher income earners at a higher rate than lower income earners. Therefore, the theory of distributional justice supports a rationale for a progressive income tax system.

Question 4

The U.S. individual income tax has always used a progressive rate structure.

Accepted Answer

The U.S. individual income tax has used a progressive rate structure since it was first introduced in 1913. This means that taxpayers with higher incomes pay a higher percentage of their income in taxes than those with lower incomes.

Question 5

Tax systems with regressive rate structures result in a proportionally heavier tax burden on persons with smaller tax bases.

Accepted Answer

Regressive tax systems tend to have a greater impact on individuals with lower incomes or smaller tax bases, as the tax rate does not increase as income increases. As a result, a larger proportion of their income is taken in taxes, resulting in a heavier burden compared to those with larger incomes.

Question 6

A dynamic forecast of the incremental revenue from a tax rate increase presumes that:  
A) Taxpayers will not change their behavior because of the rate increase.
B) The tax base will increase by the same proportion as the rate increase.
C) The tax base will decrease by the same proportion as the rate increase.
D) The tax rate and the tax base are correlated.

Accepted Answer

A dynamic forecast of the incremental revenue from a tax rate increase takes into account that taxpayers may change their behavior due to the rate increase, which can affect the tax base. This implies a correlation between the tax rate and the tax base, as changes in the tax rate can lead to changes in the tax base, contrary to static forecasting which assumes no behavioral changes.

Question 7

Many taxpayers believe the income tax system is unfair because it is so complicated.

Accepted Answer

Many taxpayers find the income tax system complicated and difficult to understand, which leads them to believe it is unfair.

Question 8

The government of Nation C operated at a $32 billion deficit this year. The deficit suggests that Nation C's tax system is: 
A) Inefficient
B) Insufficient
C) Unfair
D) Inconvenient

Accepted Answer

A budget deficit occurs when a government spends more money than it receives in revenue. If Nation C's deficit is $32 billion, it suggests that its tax system is insufficient and not generating enough revenue to cover its government spending.

Question 9

Last year, Government G levied a 35% tax on individual income, and Mr Slate paid $35,000 tax on his $100,000 income. This year, the government increased the tax rate to 40%. Which of the following statements is false? 
A) Based on a static forecast, government G should collect $5,000 additional tax from Mr. Slate this year.
B) If Mr. Slate took a second job to maintain his after-tax disposable income, his behavior illustrates a substitution effect of the rate increase.
C) If Mr. Slate took a second job to maintain his after-tax disposable income, government G should collect more than $5,000 additional tax from him this year.
D) If Mr. Slate sold an income-generating investment and used the money for personal consumption, his behavior illustrates a substitution effect of the rate increase.

Accepted Answer

Mr. Slate's behavior in taking a second job illustrates an income effect.

Question 10

The city of Belleview operated at an $865,000 surplus this year. The surplus suggests that the municipal tax system is: 
A) Fair
B) Efficient
C) Sufficient
D) Convenient

Accepted Answer

The fact that the city operated at a surplus of $865,000 suggests that the municipal tax system is generating more revenue than necessary to operate the city, indicating that it is sufficient. However, we cannot infer whether it is fair, efficient, or convenient based solely on the information provided.

Question 11

A static forecast of the incremental revenue from a tax rate increase presumes that:  
A) The tax base will not change because of the rate increase.
B) The tax base will increase by the same proportion as the rate increase.
C) The tax base will decrease by the same proportion as the rate increase.
D) The tax rate and the tax base are correlated.

Accepted Answer

A static forecast assumes that the tax base will not be impacted by the tax rate increase, meaning that there will be no change in behavior and individuals/businesses will continue to generate the same amount of taxable income.

Question 12

If a tax has a progressive rate structure, a taxpayer's average rate is greater than her marginal rate.

Accepted Answer

With a progressive rate structure, marginal rate is always greater or equal to average rate.

Question 13

Which of the following statements concerning the federal Social Security tax is true? 
A) The tax burden increases annually because the rate generally increases annually.
B) The tax burden increases annually because the base generally increases annually.
C) Both the rate and the base generally increase annually.
D) The Social Security tax burden has not increased since 1990.

Accepted Answer

The Social Security tax is based on a percentage of an employee's income up to a certain annual limit (known as the "base"). This base generally increases annually, causing the tax burden to increase for most individuals. However, the rate at which the tax is calculated has remained unchanged since 1990, at 6.2% for employees and 12.4% for self-employed individuals.

Question 14

Government J decides that it must increase its tax revenue. Which of the strategies could result in more revenue?  
A) Increase the rate of an existing tax.
B) Expand the base of an existing tax.
C) Enact a tax on a new base.
D) All of these strategies could result in more revenue for Government J.

Accepted Answer

All of the strategies could result in more revenue for Government J. 
A) Increasing the rate of an existing tax would result in more revenue, but could also potentially discourage economic activity and lead to tax evasion or avoidance. 
B) Expanding the base of an existing tax would also result in more revenue, as more individuals or businesses would be subject to the tax. 
C) Enacting a tax on a new base could also generate revenue, as long as there is a sufficient number of taxpayers subject to the tax.

Question 15

Government officials of Country Z estimate that next year's public programs will cost $19 million but that tax revenues will be only $15 million. Which of the following statements is false? 
A) Country Z's tax system is sufficient.
B) Country Z's government is engaging in deficit spending.
C) If Country Z must borrow $4 million to pay for its public programs, its national debt will increase by $4 million.
D) Country Z's government could balance its budget by eliminating a program that costs $4 million.

Accepted Answer

Option A is false because if the tax system of Country Z were sufficient, then tax revenues would be equal to or greater than the cost of public programs. The fact that tax revenues are insufficient means that the tax system is not sufficient. Option B is true because the government is spending more than it is taking in through taxes, which is called deficit spending. Option C is true because if Country Z borrows $4 million, its national debt will increase by $4 million. Option D is potentially true because if the government eliminates a program that costs $4 million, then it could balance its budget. However, the decision to eliminate a program is complex and involves evaluating the importance of the program and the potential consequences of its elimination.

Question 16

Tax liability divided by taxable income equals marginal tax rate.

Accepted Answer

Tax liability divided by taxable income equals the average tax rate, not the marginal tax rate. The marginal tax rate is the rate at which your last dollar of income is taxed.

Question 17

Jurisdiction F levies a 10% excise tax on the purchase of golf carts. The annual revenue from this tax averages $800,000 (10% * $8 million average annual golf cart purchases). Jurisdiction F is considering raising the tax rate to 12%. Which of the following statements is true?  
A) The rate increase will increase revenue by $160,000.
B) Based on a dynamic forecast, the rate increase will increase revenue by $160,000.
C) Based on a static forecast, the rate increase will increase revenue by $160,000.
D) None of the above is true.

Accepted Answer

A dynamic forecast would be based on a projected decrease in the average annual golf cart purchases because of the tax increase.

Question 18

Government officials of Country Z estimate that next year's public programs will cost $19 million but that tax revenues will be only $15 million. The officials could avoid a deficit next year by adopting which of the following fiscal strategies?  
A) Reduce the cost of public programs by $4 million.
B) Increase taxes by $4 million.
C) Borrow $4 million by issuing new government bonds.
D) All of these strategies will avoid a deficit.

Accepted Answer

The answer of Government officials of Country Z estimate that...

Question 19

Individuals who believe that a tax system is fair are less likely to cheat on their taxes than individuals who believe that the system is unfair.

Accepted Answer

Research has shown that individuals are more likely to comply with tax laws if they perceive the system as fair and just. On the other hand, if taxpayers believe that the system is unfair, they may be more inclined to cheat or evade taxes. Therefore, the statement is true.

Question 20

The declining marginal utility of income across individuals can be measured empirically.

Accepted Answer

The answer of The declining marginal utility of income across...

Quiz 2: Policy Standards for a Good Tax

A progressive rate structure and a proportionate rate structure both result in vertical equity across taxpayers.

If a tax has a proportionate rate structure, a taxpayer's marginal rate and average rate are equal.

The theory of distributional justice is a rationale for a progressive income tax system.

The U.S. individual income tax has always used a progressive rate structure.

Tax systems with regressive rate structures result in a proportionally heavier tax burden on persons with smaller tax bases.

A dynamic forecast of the incremental revenue from a tax rate increase presumes that:

Many taxpayers believe the income tax system is unfair because it is so complicated.

The government of Nation C operated at a $32 billion deficit this year. The deficit suggests that Nation C's tax system is:

Last year, Government G levied a 35% tax on individual income, and Mr Slate paid $35,000 tax on his $100,000 income. This year, the government increased the tax rate to 40%. Which of the following statements is false?

The city of Belleview operated at an $865,000 surplus this year. The surplus suggests that the municipal tax system is:

A static forecast of the incremental revenue from a tax rate increase presumes that:

If a tax has a progressive rate structure, a taxpayer's average rate is greater than her marginal rate.

Which of the following statements concerning the federal Social Security tax is true?

Government J decides that it must increase its tax revenue. Which of the strategies could result in more revenue?

Government officials of Country Z estimate that next year's public programs will cost $19 million but that tax revenues will be only $15 million. Which of the following statements is false?

Tax liability divided by taxable income equals marginal tax rate.

Jurisdiction F levies a 10% excise tax on the purchase of golf carts. The annual revenue from this tax averages $800,000 (10% * $8 million average annual golf cart purchases) . Jurisdiction F is considering raising the tax rate to 12%. Which of the following statements is true?

Government officials of Country Z estimate that next year's public programs will cost $19 million but that tax revenues will be only $15 million. The officials could avoid a deficit next year by adopting which of the following fiscal strategies?

Individuals who believe that a tax system is fair are less likely to cheat on their taxes than individuals who believe that the system is unfair.

The declining marginal utility of income across individuals can be measured empirically.