Question 1

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 2

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

The question states that the current tax rate is 10% and annual revenue from this tax averages $800,000 (10% * $8 million). If the tax rate is increased to 12%, we can make a static forecast that the revenue would increase by 20% (12% - 10%) of the current revenue, which is $160,000 (20% * $800,000). Therefore, based on a static forecast, the rate increase will increase revenue by $160,000. However, we cannot make a dynamic forecast without additional information on how the market will react to the rate increase.

Question 3

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 4

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

Studies have shown that individuals who perceive a tax system as fair are more likely to comply with the tax laws and less likely to engage in tax evasion. On the other hand, individuals who perceive the tax system as unfair are more likely to cheat on their taxes. This suggests that a perceived fairness in the tax system can play an important role in taxpayers' compliance behaviors.

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

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

Accepted Answer

Many taxpayers find the income tax system difficult to understand and navigate, leading to a perception of unfairness.

Question 7

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 8

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 insufficient to cover the cost of public programs, then the tax system is not sufficient. Therefore, statement A is false.

Question 9

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

Accepted Answer

This statement is true. In regressive tax systems, the tax rate decreases as the tax base increases. This means that people with lower incomes will end up paying a larger percentage of their income in taxes compared to those with higher incomes. As a result, the tax burden falls disproportionately on those with smaller tax bases.

Question 10

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 remain the same even if the tax rate increases, meaning that there will be no change in taxpayer behavior or economic activity. This is not necessarily the case in reality, but a static forecast is useful as a starting point for analyzing the potential revenue impact of a tax rate increase.

Question 11

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 income level. Therefore, a taxpayer's marginal rate (the rate at which their last dollar of income is taxed) will be the same as their average rate (total tax paid divided by total income earned).

Question 12

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 a higher ability to pay are taxed at a higher rate than those with lower ability to pay. This results in a fair and equitable distribution of tax burden across taxpayers.

Question 13

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. The tax rate increases as income increases, with higher income earners paying a higher tax rate than lower income earners.

Question 14

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

Accepted Answer

All of these strategies have the potential to result in more tax revenue. Increasing the rate of an existing tax will result in more revenue from those already paying the tax. Expanding the base of an existing tax will bring in revenue from those who were previously not paying the tax. Enacting a tax on a new base will create a new source of revenue for the government.

Question 15

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

Accepted Answer

A surplus indicates that the municipality's tax revenue exceeded its expenditures. This suggests that the tax system is sufficient for meeting the city's needs and expenses. However, it does not necessarily indicate whether the tax system is fair, efficient, or convenient.

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

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 18

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. The rate for the tax is 6.2% for both employees and employers, but the maximum taxable earnings subject to the tax increases each year. This means that individuals and companies with higher incomes will pay more in taxes each year due to the increase in the taxable wage base.

Question 19

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 is spending more than it is earning through taxes, indicating that the tax system is insufficient.

Question 20

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

Accepted Answer

The theory of distributional justice holds that a progressive income tax system is more just as it redistributes wealth from the wealthy to the less affluent members of society. Therefore, the theory supports a progressive income tax system.

Quiz 2: Policy Standards for a Good Tax