Question 1

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

Accepted Answer

A deficit means that the government did not collect enough revenue to cover its expenses. This suggests that the tax system is insufficient and may need to be reevaluated or adjusted to generate more revenue for the government.

Question 2

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

Accepted Answer

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

Question 3

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 who perceive a tax system to be fair are more likely to view tax compliance as a moral duty and are less likely to engage in tax evasion or avoidance behaviors. On the other hand, individuals who believe that the system is unfair may feel justified in evading taxes as a form of protest or resistance.

Question 4

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

Accepted Answer

The surplus indicates that the municipal tax system is collecting more revenue than necessary to cover expenses. This implies that the tax system is sufficient and could potentially be adjusted to reduce the burden on taxpayers. The surplus does not necessarily indicate fairness, efficiency, or convenience of the tax system.

Question 5

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

Accepted Answer

The Social Security tax burden increases annually because the base increases annually. As of 2021, the tax rate is 6.2% for both employees and employers, and the income base subject to the tax is $142,800. This income base increases each year due to inflation, causing the tax burden to increase for individuals earning above that amount. However, the tax rate has not changed since 1990.

Question 6

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

Accepted Answer

Both a progressive rate structure and a proportionate rate structure aim to achieve vertical equity, which means that taxpayers with higher incomes pay a higher proportion of their income in taxes than taxpayers with lower incomes. In other words, the tax burden is proportional to the taxpayer's ability to pay under both rate structures.

Question 7

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 tax rate remains constant regardless of the taxpayer's income level. Therefore, the marginal rate (the rate at which each additional dollar of income is taxed) and the average rate (the total tax paid divided by the total income) are equal.

Question 8

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

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 9

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

Accepted Answer

Regressive rate structures mean that the tax rate decreases as the tax base (income or value) increases. This results in a heavier burden on those with smaller tax bases as they are paying a higher percentage of their income or assets in taxes than those with larger tax bases.

Question 10

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

Accepted Answer

In a progressive tax system, a taxpayer's marginal rate (the rate on the last dollar of income) is higher than the average rate (total tax paid divided by total income), because as income increases, the tax rate on additional income also increases.

Question 11

Tax liability divided by taxable income equals marginal tax rate.

Accepted Answer

Marginal tax rate is the tax rate applied to the last dollar of taxable income. It is calculated by dividing the change in tax liability by the change in taxable income, not by dividing tax liability by taxable income.

Question 12

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

Accepted Answer

A static forecast assumes that the tax base will not change as a result of the tax rate increase. It does not account for any behavioral changes or shifts that may occur in response to the increase in taxes. Therefore, the forecast is "static" and assumes no change in the tax base.

Question 13

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

Accepted Answer

This is true. The U.S. individual income tax has always used a progressive rate structure, meaning that tax rates increase as income increases. This is designed to ensure that those who earn more pay a higher percentage of their income in taxes than those who earn less.

Question 14

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

Accepted Answer

All strategies can potentially increase tax revenue: raising rates increases revenue per unit, expanding the base increases the number of units taxed, and taxing a new base introduces additional revenue streams.

Question 15

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?

Accepted Answer

The answer of Last year, Government G levied a 35%...

Question 16

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?

Accepted Answer

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

Question 17

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

Accepted Answer

Many taxpayers feel overwhelmed and frustrated by the complexity of the income tax system, leading them to believe it is unfair.

Question 18

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?

Accepted Answer

Since the question only asks for a static forecast, we can assume that the increase in tax rate will directly increase the revenue by 2% of the average annual golf cart purchases. Thus, 2% of $8 million is $160,000, which means that revenue will increase by $160,000 if the tax rate is raised to 12%.

Question 19

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

Accepted Answer

The theory of distributional justice believes that a society's wealth should be distributed fairly among its members. A progressive income tax system achieves this goal by collecting a higher percentage of income from wealthier individuals and using the revenue to provide services and benefits to those with lower incomes.

Question 20

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?

Accepted Answer

If tax revenues are not enough to cover the cost of public programs, it implies that the tax system is insufficient. Therefore, statement A is false. Statement B is true, as the government is engaging in deficit spending. Statement C is true, as borrowing $4 million will increase the national debt by $4 million. Statement D is also true, as eliminating a program that costs $4 million would balance the budget.

Quiz 2: Policy Standards for a Good Tax