Question 1

In a regressive tax rate system, the marginal tax rate will often be greater than the average tax rate.

Accepted Answer

In a regressive tax rate system, the marginal tax rate decreases as income increases. Therefore, the marginal tax rate will often be lower than the average tax rate.

Question 2

In a proportional (flat) tax rate system, the marginal tax rate will always equal the average tax rate.

Accepted Answer

In a proportional tax rate system, everyone pays the same percentage of their income as taxes. Therefore, the marginal tax rate (the rate at which additional income is taxed) will always be the same as the average tax rate (total taxes paid divided by total income).

Question 3

In addition to raising revenues, specific U.S. taxes may have other objectives (e.g., economic or social objectives).

Accepted Answer

Yes, specific U.S. taxes may have other objectives besides raising revenues such as encouraging certain behaviors or discouraging others, redistributing income, or addressing externalities.

Question 4

The tax base for the federal income tax is taxable income.

Accepted Answer

Taxable income is the amount of income that is subject to federal income tax, and it serves as the tax base for calculating income tax liability.

Question 5

George recently paid $50 to renew his driver's license. The $50 payment is considered a tax.

Accepted Answer

The payment to renew a driver's license is considered a fee, not a tax. Taxes are mandatory payments to the government, while fees are payments for a specific government service or privilege.

Question 6

A taxpayer's average tax rate is the most appropriate tax rate to use in tax planning.

Accepted Answer

The marginal tax rate, which is the rate at which the next dollar of taxable income would be taxed, is more appropriate for tax planning because it provides a better understanding of the impact of additional income or deductions.

Question 7

A flat tax is an example of a graduated tax system.

Accepted Answer

A flat tax is a tax system where everyone pays the same percentage of their income, regardless of how much they earn. A graduated tax system, on the other hand, is a tax system where tax rates increase as income increases. Therefore, a flat tax is not an example of a graduated tax system.

Question 8

One benefit of a sin tax (e.g., a tax on cigarettes) is that it should increase the demand for the products being taxed.

Accepted Answer

The purpose of a sin tax is actually to decrease the demand for the products being taxed, usually due to their negative health or societal impacts. The tax makes the products more expensive, which is meant to discourage their use.

Question 9

Taxes influence many types of business decisions but generally do not influence personal decisions.

Accepted Answer

Taxes can influence personal decisions such as the choice of where to live, whether to buy or rent a home, whether to have children, the amount of charitable giving, and the decision to invest in retirement accounts.

Question 10

Taxes influence business decisions such as where a business should locate or how a business should be structured.

Accepted Answer

Taxes can play a significant role in shaping business decisions, including where to locate a business to take advantage of tax incentives or benefits, and how to structure a business in a way that minimizes tax liabilities.

Question 11

Common examples of sin taxes include the taxes imposed on airline tickets and gasoline.

Accepted Answer

Common examples of sin taxes include taxes on items such as alcohol, tobacco, and sugary drinks. Taxes on airline tickets and gasoline are not typically considered sin taxes.

Question 12

One key characteristic of a tax is that it is a required payment to a governmental agency.

Accepted Answer

A tax is a required payment to a governmental agency, usually based on income, property, or goods and services. Failure to pay taxes can result in penalties and legal consequences.

Question 13

The main difficulty in calculating an income tax is determining the correct amount of the tax base.

Accepted Answer

The tax base refers to the amount that is subject to taxation, and determining the correct tax base is essential in calculating an accurate income tax. Other factors such as tax rates and deductions also play a role in the final tax calculation, but without an accurate tax base, the tax amount cannot be determined correctly.

Question 14

A 1% charge imposed by a local government on football tickets sold is not considered a tax if all proceeds are earmarked to fund local schools.

Accepted Answer

The answer of A 1% charge imposed by a local...

Question 15

The effective tax rate, in general, provides a better depiction of a taxpayer's tax burden than the average tax rate.

Accepted Answer

The effective tax rate takes into account all deductions, credits, and exemptions, and provides a more accurate measure of the actual tax burden a taxpayer faces. On the other hand, the average tax rate is calculated by dividing the total tax liability by taxable income, which does not take into account deductions and other factors that may reduce a taxpayer's tax burden.

Question 16

Tax policy rarely plays an important part in presidential campaigns.

Accepted Answer

Tax policy is often a key issue in presidential campaigns, as it has a significant impact on the economy and people's wallets. Candidates often propose changes to tax laws and use them as a way to differentiate themselves from their opponents.

Question 17

A sales tax is a common example of a progressive tax rate structure.

Accepted Answer

A sales tax is actually an example of a regressive tax rate structure because it takes a larger percentage of income from low-income earners than from high-income earners.

Question 18

The effective tax rate expresses the taxpayer's total tax as a percentage of the taxpayer's taxable and nontaxable income.

Accepted Answer

This is the correct definition of effective tax rate.

Question 19

The two components of the tax calculation are the tax rate and the taxpayer's status.

Accepted Answer

The two main components of tax calculation are the tax rate and the taxable income. Taxpayer's status affects how the taxable income is calculated and what tax rates apply.

Question 20

Margaret recently received a parking ticket. This is a common example of a local tax.

Accepted Answer

Parking tickets are considered fines or penalties for violating parking regulations, not taxes. Taxes are compulsory charges levied by a government for public purposes, while fines are punitive and meant to discourage illegal or unwanted behavior.

Quiz 1: An Introduction to Tax