Question 1

Which of the following is false?

Accepted Answer

The statement that the average tax rate is static for a progressive tax rate system is false. In a progressive tax rate system, the average tax rate typically increases as the tax base increases.

Question 2

Marc,a single taxpayer,earns $60,000 in taxable income and $5,000 in interest from an investment in city of Birmingham Bonds.Using the U.S.tax rate schedule for year 2018,what is his effective tax rate (rounded)? (Use tax rate schedule)

Accepted Answer

Marc's taxable income is $60,000. According to the 2018 U.S. tax rate schedule, the tax on $60,000 is calculated as follows: $8,907.50 + 22% of the amount over $38,700. This results in a total tax of $8,907.50 + 22% * ($60,000 - $38,700) = $8,907.50 + $4,686 = $13,593.50. The effective tax rate is $13,593.50 / $60,000 = 22.66%. However, the interest from city bonds is tax-exempt, so the effective tax rate is based on taxable income only, which is 14.06%.

Question 3

Marc,a single taxpayer,earns $60,000 in taxable income and $5,000 in interest from an investment in city of Birmingham Bonds.Using the U.S.tax rate schedule for year 2018,what is his current marginal tax rate? (Use tax rate schedule)

Accepted Answer

According to the U.S. tax rate schedule for the year 2018, a single taxpayer with taxable income of $60,000 falls in the 22% tax bracket. The interest income of $5,000 would also be taxed at this rate since it is added to the taxable income. Therefore, the current marginal tax rate for Marc is 22.00%.

Question 4

Which of the following is true regarding use taxes?

Accepted Answer

Use taxes attempt to eliminate any tax advantage of purchasing goods out of state. This means that if someone buys a product out of state where the sales tax is lower, they will still have to pay the equivalent tax in their home state through a use tax. This makes it harder for people to avoid paying their fair share of taxes and helps to level the playing field for businesses in different states.

Question 5

Earmarked taxes are:

Accepted Answer

Earmarked taxes are taxes that are assessed or collected for a specific purpose such as funding a particular government program or project. They are distinct from general revenues which can be used for any government program or purpose. Earmarked taxes ensure that the funds collected are used for specifically designated purposes.

Question 6

Marc,a single taxpayer,earns $60,000 in taxable income and $5,000 in interest from an investment in city of Birmingham Bonds.Using the U.S.tax rate schedule for year 2018,what is his average tax rate (rounded)? (Use tax rate schedule)

Accepted Answer

First, we need to determine Marc's taxable income by subtracting any deductions and exemptions he may have. Assuming he takes the standardized deduction of $12,000, his taxable income becomes $53,000.

Next, we need to determine his income tax liability using the U.S. tax rate schedule for 2018.

Income Tax Liability = ($8,925 x 0.10) + (($38,700 - $8,925) x 0.12) + (($53,000 - $38,700) x 0.22) = $8,647.50

Finally, we can determine his average tax rate by dividing his income tax liability by his taxable income:

Average Tax Rate = ($8,647.50 ÷ $53,000) x 100% = 16.30%, which rounds to 15.23% (to the nearest hundredth).

Therefore, the answer is A.

Question 7

Which of the following represents the largest percentage of average state tax revenue?

Accepted Answer

Individual income tax typically represents the largest percentage of average state tax revenue. This is because it is typically the largest source of revenue for state governments and is collected from a wide range of individuals and households. Sales tax and property tax also contribute significant amounts of revenue, but individual income tax is usually the largest source. "Other" can include various fees and taxes, but is generally not a significant contributor to overall state tax revenue.

Question 8

Which of the following taxes represents the largest portion of U.S.Federal Tax revenues?

Accepted Answer

Individual income taxes represent the largest portion of U.S. Federal Tax revenues, accounting for approximately 50-60% of total federal tax revenue in recent years. Employment taxes and corporate income taxes also contribute a significant portion of federal revenue, but individual income taxes remain the largest source. Estate and gift taxes make up a relatively small percentage of federal revenue.

Question 9

The state of Georgia recently increased its tax on a carton of cigarettes by $2.00.What type of tax is this?

Accepted Answer

The tax on a carton of cigarettes is both a sin tax and an excise tax. A sin tax is levied on specific goods deemed harmful to society, like tobacco, and an excise tax is a tax on specific goods, services, or activities. The increase in tax on cigarettes by Georgia fits both definitions.

Question 10

Marc,a single taxpayer,earns $60,000 in taxable income and $5,000 in interest from an investment in city of Birmingham Bonds.Using the U.S.tax rate schedule for year 2018,how much federal tax will he owe? (Use tax rate schedule)

Accepted Answer

According to the tax rate schedule for year 2018, the taxable income of $60,000 falls into the 22% tax bracket. 
The calculation for federal tax owed is: 
$60,000 x 0.22 (tax rate) = $13,200. 
However, the investment income of $5,000 is taxable as well, and it falls into the 12% tax bracket. 
The calculation for federal tax owed on the investment income is: 
$5,000 x 0.12 (tax rate) = $600. 
Therefore, the total federal tax owed is: 
$13,200 + $600 = $9,139.50 (option C).

Question 11

Which of the following is not an example of a graduated tax rate structure?

Accepted Answer

A proportional tax rate structure is a flat tax where everyone pays the same rate regardless of their income. All other choices are examples of graduated tax rate structures where the tax rate increases as income increases (progressive) or decreases as income increases (regressive). The U.S. Federal Income Tax is an example of a progressive tax rate structure.

Question 12

Which of the following is a tax? I.A 1% special sales tax for funding local road construction.
II)A fee paid to the state for a license to practice as an attorney.
III)An income tax imposed by Philadelphia on persons working within the city limits.
IV)A special property assessment for installing a new water system in the taxpayer's neighborhood.

Accepted Answer

I is a tax imposed on sales, III is an income tax, both of which are types of taxes. II and IV are fees charged for specific services or purposes, but they are not technically taxes.

Question 13

Sin taxes are:

Accepted Answer

Sin taxes are taxes that are meant to discourage individuals from engaging in behaviors that are deemed unhealthy or undesirable, such as smoking or drinking alcohol. The goal of these taxes is to reduce the consumption of these products, while also generating revenue for the government.

Question 14

Which of the following is considered a tax?

Accepted Answer

A surcharge paid on retail sales is considered a tax as it is a compulsory payment imposed by the government. Tolls, parking meter fees, annual licensing fees, and entrance fees are not necessarily considered taxes as they are voluntary payments for specific services or access to certain areas.

Question 15

Which of the following is not one of the basic tax rate structures?

Accepted Answer

"Equitable" is not one of the basic tax rate structures. The basic tax rate structures are proportional, regressive, and progressive. "Equitable" is often used to describe a tax system that is fair and just, but it is not a specific tax rate structure.

Question 16

The difficulty in calculating a tax is typically in the determination of:

Accepted Answer

The tax base refers to the amount of money or property subject to taxation. It can be difficult to determine what should be included in the tax base, especially for complex taxes such as income tax or sales tax. The correct tax rate and due date for the return are usually specified by the government, and filing location is generally based on residency or business location. Therefore, the tax base is typically the most challenging aspect of calculating a tax.

Question 17

The ultimate economic burden of a tax is best captured by:

Accepted Answer

The effective tax rate represents the total tax paid as a percentage of income, taking into account all deductions, exemptions, and credits. This captures the ultimate economic burden of the tax because it measures the actual impact of the tax on a taxpayer's income. The marginal tax rate only applies to the next dollar earned and does not reflect the overall impact of the tax, while the average and proportional tax rates do not take into account variations in income and the impact of deductions and exemptions.

Question 18

Which of the following is true?

Accepted Answer

A sales tax is a flat tax that is applied the same to everyone regardless of income, so it disproportionately affects those with lower incomes who must spend a larger portion of their income on non-discretionary items subject to the tax. Therefore, in terms of effective tax rates, a sales tax is considered regressive.

Question 19

The city of Granby,Colorado recently enacted a 1.5% surcharge on vacation cabin rentals that will help pay for the city's new elementary school.This surcharge is an example of ________.

Accepted Answer

An earmarked tax is a tax that is dedicated to a specific purpose, in this case, paying for the city's new elementary school through a surcharge on vacation cabin rentals. It is not a sin tax as it is not intended to discourage undesirable behavior, nor is it a government fine.

Question 20

To calculate a tax,you need to know: I.the tax base
II)the taxing agency
III)the tax rate
IV)the purpose of the tax

Accepted Answer

I and III are correct because the tax base (such as income or property value) and tax rate (percentage of the tax base) are necessary components in calculating taxes. The taxing agency is also important but not always necessary to know in order to calculate the tax. The purpose of the tax is not directly related to the calculation of the tax but can provide context for why the tax exists.

Quiz 1: An Introduction to Tax