Question 1

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 the same regardless of the amount of income earned. Therefore, the marginal rate (tax rate on the last dollar earned) and the average rate (total tax paid divided by total income) will be equal.

Question 2

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 the tax system as fair are more likely to comply with tax laws and less likely to engage in tax evasion or cheating. This is because they view paying taxes as a civic duty and a contribution to society. On the other hand, individuals who perceive the tax system as unfair, complicated or arbitrary are more likely to feel disenchanted with the system and to try to avoid paying taxes.

Question 3

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 indicates that the government did not collect enough revenue to cover its spending. This suggests that Nation C's tax system is insufficient, meaning that it is not generating enough revenue to cover the government's expenses.

Question 4

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

Accepted Answer

A static forecast assumes that the tax base remains unchanged even after a tax rate increase. This is a common assumption used in economic analysis and budgeting, but it may not always hold true in reality. In some cases, a higher tax rate may discourage economic activity and cause the tax base to shrink. In other cases, a tax rate increase may incentivize more individuals and businesses to report their income, thus expanding the tax base. However, a static model assumes that none of these effects will occur, and instead simply projects the revenue increase based on the new tax rate and the existing tax base.

Question 5

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 6

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 its inception in 1913. This means that the tax rate increases as income increases, with higher earning individuals paying a higher percentage of their income in taxes.

Question 7

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

Accepted Answer

The answer of Government J decides that it must increase...

Question 8

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 9

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 take into account individuals' ability to pay and therefore result in vertical equity, where those who are able to pay more taxes do so.

Question 10

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

Accepted Answer

The fact that the city operated at a surplus means that their tax system collected more money than necessary to operate the city. This suggests that the tax system is sufficient, as it is providing enough revenue for the city's needs. It does not necessarily indicate that the tax system is fair, efficient, or convenient.

Question 11

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 12

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 13

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

Accepted Answer

The base for Social Security tax increases annually based on the national average wage index. However, the rate has remained unchanged since 1990 at 6.2% for employees and 6.2% for employers. Therefore, option A and C are incorrect, and option D is false as well.

Question 14

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

Accepted Answer

Regressive tax systems apply a lower tax rate to higher income earners and a higher tax rate to lower income earners, resulting in a proportionally heavier tax burden on persons with smaller tax bases.

Question 15

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

Based on a static forecast, the rate increase will increase revenue by $160,000. This is because the calculation is based on a straight percentage increase in tax rate and assumes no change in behavior from consumers or businesses. A dynamic forecast would take into account potential changes in behavior, such as a decrease in demand for golf carts due to the higher tax rate, which could affect the actual revenue increase. However, no information is given to support a dynamic forecast. Therefore, based on the information provided, the correct answer is C.

Question 16

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

Accepted Answer

Many taxpayers feel that the complexity of the income tax system makes it difficult for them to understand and comply with the rules, leading to a perception of unfairness.

Question 17

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

Accepted Answer

The theory of distributional justice argues that the benefits and burdens of society should be distributed fairly among its members. A progressive income tax system, which taxes higher incomes at a higher rate, is seen as a way to achieve this goal by redistributing wealth and reducing economic inequality. Therefore, the theory of distributional justice justifies a progressive income tax system.

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. Which of the following statements is false?

Accepted Answer

If the estimated tax revenues are not sufficient to cover the cost of public programs, then the tax system is not sufficient. The government is engaging in deficit spending, and if it borrows $4 million, then the national debt will increase by $4 million. While eliminating a program that costs $4 million could balance the budget, this choice is not presented as the only solution and may not be the best option for the country.

Question 19

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 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