Question 1

What is the difference between nominal and effective tax rates? What creates the distinction?

Accepted Answer

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Question 2

A major attraction of the flat tax is its simplicity.

Accepted Answer

The flat tax is often praised for its simple and straightforward structure, as it imposes a single tax rate on all income levels and eliminates many deductions and exemptions.

Question 3

The tax incidence of a payroll tax results in an increase in net wages.

Accepted Answer

The tax incidence of a payroll tax falls on both the employer and the employee, leading to a decrease in net wages for the employee. The employer may also bear some of the burden of the tax, which can affect the willingness to hire or retain employees.

Question 4

Why isn't the level of personal income always a good measure of the distribution of goods and services?

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Question 5

In what way is the Social Security payroll tax regressive?

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Question 6

Define vertical equity and horizontal equity.How do tax loopholes sometimes create vertical and horizontal inequity?

Accepted Answer

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Question 7

Explain the following statement by Arthur Okun: "Insistence on carving the pie into equal slices would shrink the size of the pie.This fact poses the trade-off between economic equality and economic efficiency."

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Question 8

The argument for greater equality of income distribution in the United States hinges on the idea that low-income earners would be more willing and able participants in the economy if income were distributed more equally.

Accepted Answer

This is a common argument among proponents of greater income equality, as they believe that when low-income earners have more money, they have a greater ability to spend and stimulate the economy. Additionally, they argue that greater income equality can lead to greater social mobility and a stronger middle class.

Question 9

High-income families pay a significantly greater percentage of their income in taxes compared to low-income families.

Accepted Answer

Low-income families often pay a higher percentage of their income in taxes when considering all types of taxes, including sales, property, and payroll taxes, not just income taxes. This can lead to a regressive tax effect, where lower-income individuals bear a larger tax burden relative to their income.

Quiz 19: Taxes: Equity Versus Efficiency