Question 1

Tax liability divided by taxable income equals marginal tax rate.

Accepted Answer

Tax liability divided by taxable income gives you the effective tax rate. The marginal tax rate is the rate applied to the last dollar of income earned, which is not the same as the effective tax rate.

Question 2

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 3

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 amount of income earned. Therefore, marginal rate and average rate will be the same.

Question 4

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

Accepted Answer

Many taxpayers have expressed frustration with the complexity of the income tax system, which they believe makes it difficult to understand and comply with the tax laws. This has led to calls for simplification and reform of the tax system in order to make it more transparent and easier for taxpayers to navigate.

Question 5

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 tax rates increase as a taxpayer's income increases, with higher earners paying a higher percentage of their income in taxes.

Question 6

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 Social Security tax has been 6.2% for employees and employers since 1990, but the base (the maximum amount of earnings subject to the tax) has increased over time. In 2020, the maximum taxable earnings for Social Security was $137,700.

Question 7

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 money than it is bringing in through taxes, indicating that the tax system is insufficient to cover the government's expenses.

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. 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 9

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 10

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

If individuals believe that the tax system is fair, they are more likely to view paying taxes as their civic duty and feel a sense of responsibility to contribute to society. On the other hand, if they believe that the system is unfair, they may feel justified in cheating or avoiding taxes. So, the belief in fairness can deter tax evasion.

Question 11

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 12

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

Accepted Answer

A regressive tax structure imposes a higher tax rate on individuals with lower incomes or tax bases, resulting in a heavier tax burden on those with smaller incomes. Therefore, the statement is true.

Question 13

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

Accepted Answer

The theory of distributional justice posits that individuals should receive benefits and burdens based on the distribution of resources in society. This principle supports a progressive income tax system, in which those with higher incomes are taxed at higher rates in order to redistribute wealth and reduce income inequality.

Question 14

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 only $15 million but next year's public programs will cost $19 million, Country Z's tax system is not sufficient to cover the costs of its public programs. This means that the government will need to either reduce spending or increase tax revenues to balance the budget. B is true because the government is spending more than it is collecting in taxes. C is also true, as the national debt will increase by the amount that the government borrows. D is a possibility for balancing the budget, but it would depend on the specific program being eliminated and whether the potential benefits of the program outweigh the costs.

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 tax rate increase from 10% to 12% will increase revenue by $160,000. This assumes that the demand for golf carts will remain constant and that consumers will absorb the full cost of the tax increase without changing their purchasing behavior. However, if the tax increase causes the demand for golf carts to decrease or if consumers switch to purchasing golf carts from neighboring jurisdictions with lower tax rates, the revenue increase may not be as high. A dynamic forecast would take into account these potential changes in consumer behavior, but it is not mentioned in the question whether such a forecast has been conducted. Therefore, option B is not necessarily true.

Question 16

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

Accepted Answer

Both progressive and proportionate rate structures aim to achieve vertical equity by requiring taxpayers with higher income or wealth to pay a higher proportion of their income or wealth in taxes compared to those with lower income or wealth.

Question 17

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 be affected by the increase in tax rate, meaning that the amount of revenue generated is solely dependent on the new tax rate and the existing tax base. This does not take into account any behavioral changes that could occur as a result of the tax rate increase, which could ultimately impact the tax base.

Question 18

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 suggests that the municipal tax system is sufficient, meaning that the city's revenue from taxes is more than enough to cover its expenses. It does not necessarily indicate if the tax system is fair, efficient, or convenient.

Question 19

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 20

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.

Quiz 2: Policy Standards for a Good Tax