Question 1

James earns income of $90,000 per year. His average tax rate is 40percent. James paid $5,500 in taxes on the first $40,000 he earned. What was the marginal tax rate on the rest of his income?
A) 6.1 percent
B) 44 percent
C) 55 percent
D) 61 percent

Accepted Answer

The answer of James earns income of $90,000 per year....

Question 2

Scenario 12-4
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 12-4. At what level of income would the taxpayer's marginal tax rate be 30 percent and her average tax rate be 25 percent?
A) $42,000
B) $57,000
C) $60,000
D) $80,000

Accepted Answer

The answer of Scenario 12-4
A taxpayer faces the following tax...

Question 3

As tax laws become more complex,
A) the administrative burden of taxes will increase.
B) compliance costs are likely to decrease.
C) the government will collect more in tax revenue.
D) the amount of tax revenue lost to tax evasion will decrease.

Accepted Answer

As tax laws become more complex, it becomes harder for businesses and individuals to accurately report their income and deductions, increasing the administrative burden of taxes. This can lead to increased costs for businesses and individuals to comply with tax laws. Additionally, complex tax laws may create loopholes and opportunities for tax evasion, which can decrease the amount of tax revenue collected by the government. Therefore, A is the best choice.

Question 4

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 best choice for gauging how much the income tax system distorts incentives is the marginal tax rate. The marginal tax rate measures the amount of tax paid on the last dollar earned, which directly affects the incentive to work or earn additional income. The higher the marginal tax rate, the more the income tax system distorts incentives.

Question 5

Sue earns income of $80,000 per year. Her average tax rate is 30 percent. Sue paid 20 percent in taxes on the first $30,000 she earned. What was the marginal tax rate on the rest of her income?
A) 20 percent
B) 24 percent
C) 30 percent
D) 36 percent

Accepted Answer

To find out Sue's marginal tax rate, we need to know the tax rate applied to the next dollar she earns. Since Sue paid 20 percent on the first $30,000, she paid $6,000 in taxes ($30,000 x 0.20 = $6,000). This means that of the $80,000 she earned, she had $50,000 left to be taxed at a higher rate.

To find out what that rate is, we can use the formula:

Marginal tax rate = (tax paid on next dollar ÷ additional income earned)

To calculate the tax paid on the next dollar, we can subtract Sue's income over $30,000 from her total taxes paid:

$6,000 (total taxes paid) - $6,000 (taxes paid on first $30,000) = $0 (taxes paid on next dollar)

To calculate the additional income earned, we can subtract $30,000 from Sue's total income:

$80,000 (total income) - $30,000 (income taxed at 20%) = $50,000 (additional income taxed at marginal rate)

Now we can use the formula:

Marginal tax rate = ($0 ÷ $50,000) = 0%

This means that Sue's marginal tax rate on the rest of her income (above $30,000) is 0%. However, her average tax rate is still 30%, since she paid $24,000 in taxes on a total income of $80,000.

Question 6

Scenario 12-4
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 12-4. The taxpayer faces a marginal tax rate of
A) 20 percent when her income rises from $40,000 to $40,001.
B) 20 percent when her income rises from $30,000 to $30,001.
C) 0 percent when her income rises from $30,000 to $30,001.
D) 10 percent when her income rises from $40,000 to $40,001.

Accepted Answer

The taxpayer faces a marginal tax rate of 20% only on the portion of her income that falls within the first tax bracket ($0-$40,000). Therefore, when her income rises from $30,000 to $30,001, she will only incur an additional 20% tax on the amount above $30,000, which is $1. This results in a marginal tax rate of 20%.

Question 7

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 $30,000?
A) both are 10 percent
B) 10 percent and $2,000, respectively
C) $3,000 and 10 percent, respectively
D) $3,000 and 20 percent, respectively

Accepted Answer

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

Question 8

The deadweight loss of an income tax is determined by the
A) amount of total tax revenue to the government.
B) marginal tax rate.
C) average tax rate.
D) ability-to-pay principle.

Accepted Answer

The deadweight loss of an income tax is determined by the marginal tax rate. This is because the higher the tax rate, the more it discourages individuals from engaging in economic activity and producing goods and services. This results in a loss of economic efficiency and creates a deadweight loss. The amount of total tax revenue, average tax rate, and ability-to-pay principle do not directly determine the deadweight loss.

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

Marginal tax rate is the percentage of tax that will be paid on an additional dollar of income. It is calculated by dividing the increase in taxes by the increase in income. Therefore, the correct choice would be B.

Question 10

Because the marginal tax rate rises as income rises,
A) higher income families, in general, pay a larger percentage of their income in taxes.
B) lower income families, in general, pay a larger percentage of their income in taxes.
C) a disproportionately large share of the tax burden falls upon the poor.
D) higher income families pay the same percentage of their income in taxes as lower-income families.

Accepted Answer

As the marginal tax rate increases with income, higher income families, in general, pay a larger percentage of their income in taxes. Therefore, Option A is correct.

Question 11

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

For the first $40,000 of income, the tax liability is 10% or $4,000. For the remaining $10,000 of income ($50,000 - $40,000), the tax liability is 20% or $2,000. The total tax liability is then $4,000 + $2,000 = $6,000.

The marginal tax rate is determined by the tax rate on the last dollar of income earned. In this case, the last dollar earned is taxed at a rate of 20%, so the marginal tax rate is 20%.

Question 12

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 marginal tax rate on individual federal income tax increases as income increases. This means that as an individual's income increases, the percentage of their income that is taxed at a higher rate increases as well. This is also known as a progressive tax system.

Question 13

Scenario 12-4
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 12-4. The taxpayer faces
A) an average tax rate of 22.5 percent when her income is $30,000.
B) an average tax rate of 22.0 percent when her income is $50,000.
C) a marginal tax rate of 10 percent when her income rises from $40,000 to $40,001.
D) a marginal tax rate of 50 percent when her income rises from $60,000 to $60,001.

Accepted Answer

The answer of Scenario 12-4
A taxpayer faces the following tax...

Question 14

Tim earns income of $60,000 per year and pays $21,000 per year in taxes. Tim paid 20 percent in taxes on the first $30,000 he earned. What was the marginal tax rate on the second $30,000 he earned?
A) 20 percent
B) 30 percent
C) 50 percent
D) 70 percent

Accepted Answer

The answer of Tim earns income of $60,000 per year...

Question 15

Sue earns income of $80,000 per year. Her average tax rate is 40 percent. Sue paid $4,500 in taxes on the first $30,000 she earned. What was the marginal tax rate on the rest of her income?
A) 15 percent
B) 32 percent
C) 40 percent
D) 55 percent

Accepted Answer

The answer of Sue earns income of $80,000 per year....

Question 16

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 17

'The U.S. tax code gives preferential treatment to investors in municipal bonds. This is an example of
A) a tax loophole.
B) tax evasion.
C) an administrative burden.
D) tax enforcement.

Accepted Answer

The preferential treatment given to investors in municipal bonds is a tax loophole in which certain investors are able to reduce their tax liability by investing in tax-exempt bonds. This loophole provides a tax advantage to investors and is legal under the current tax code.

Question 18

Tax systems that impose recordkeeping requirements on taxpayers are said to have a(n)
A) auditing burden.
B) lower incidence of compliance.
C) administrative burden.
D) certification requirement.

Accepted Answer

Tax systems that impose recordkeeping requirements on taxpayers have an administrative burden because taxpayers must maintain accurate records to comply with tax laws. This burden can lead to additional time and costs for taxpayers.

Question 19

Nancy paid a tax of $0.50 on the last dollar she earned in 1999. Nancy's marginal tax rate in 1999 was
A) more than 50 percent.
B) exactly 50 percent.
C) higher than her average tax rate.
D) lower than her average tax rate.

Accepted Answer

The answer of Nancy paid a tax of $0.50 on...

Question 20

Which of the following is not an administrative burden of our tax system?
A) government resources used to enforce tax laws
B) keeping tax records throughout the year
C) paying the taxes owed
D) time spent in April filling out forms

Accepted Answer

Paying the taxes owed is not considered an administrative burden, as it is simply the result of complying with tax laws. The other options listed all involve additional steps or efforts required to comply with tax regulations.

Quiz 12: The Design of the Tax System

James earns income of $90,000 per year. His average tax rate is 40percent. James paid $5,500 in taxes on the first $40,000 he earned. What was the marginal tax rate on the rest of his income?

As tax laws become more complex,

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

Sue earns income of $80,000 per year. Her average tax rate is 30 percent. Sue paid 20 percent in taxes on the first $30,000 she earned. What was the marginal tax rate on the rest of her income?

Scenario 12-4 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 12-4. The taxpayer faces a marginal tax rate of

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 $30,000?

The deadweight loss of an income tax is determined by the

A person's marginal tax rate equals

Because the marginal tax rate rises as income rises,

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?

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

Scenario 12-4 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 12-4. The taxpayer faces

Tim earns income of $60,000 per year and pays $21,000 per year in taxes. Tim paid 20 percent in taxes on the first $30,000 he earned. What was the marginal tax rate on the second $30,000 he earned?

Sue earns income of $80,000 per year. Her average tax rate is 40 percent. Sue paid $4,500 in taxes on the first $30,000 she earned. What was the marginal tax rate on the rest of her income?

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

'The U.S. tax code gives preferential treatment to investors in municipal bonds. This is an example of

Tax systems that impose recordkeeping requirements on taxpayers are said to have a(n)

Nancy paid a tax of $0.50 on the last dollar she earned in 1999. Nancy's marginal tax rate in 1999 was

Which of the following is not an administrative burden of our tax system?