Question 1

Evaluate the U.S. federal tax system on the certainty and economy criteria.

Accepted Answer

The answer of Evaluate the U.S. federal tax system on...

Question 2

Curtis invests $250,000 in a city of Athens bond that pays 7% interest. Alternatively, Curtis could have invested the $250,000 in a bond recently issued by Initech, Inc. that pays 9% interest with similar risk as the city of Athens bond. Assume that Curtis's marginal tax rate is 28%. If Curtis invested in the Initech, Inc. bonds, what would be his after-tax rate of return from this investment?

Accepted Answer

[(1 - 0.28) × (250,000 × .09)]/250,000 = .0648

Question 3

Jackson has the choice to invest in city of Mitchell bonds or Sundial, Inc. corporate bonds that pay 10% interest. Jackson is a single taxpayer who earns $55,000 annually. Assume that the city of Mitchell bonds and the Sundial, Inc. bonds have similar risk. What interest rate would the city of Mitchell have to pay in order to make Jackson indifferent between investing in the city of Mitchell and the Sundial, Inc. bonds for year 2016?

Accepted Answer

Jackson's marginal tax rate is 25%, so his after-tax rate of return on the Sundial, Inc. bonds would be 7.5%. Therefore, the city of Mitchell must pay 7.5% to make Jackson indifferent between the two bonds.

Question 4

For each of the following, determine if each is a tax and why or why not.
a. $2.50 toll paid on the Florida Turnpike
b. $300 ticket for reckless driving
c. 1% local surcharge on hotel rooms to fund public roadways
d. 2% city surcharge on wages earned in the city of Philadelphia

Accepted Answer

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Question 5

Curtis invests $250,000 in a city of Athens bond that pays 7% interest. Alternatively, Curtis could have invested the $250,000 in a bond recently issued by Initech, Inc. that pays 9% interest with similar risk as the city of Athens bond. Assume that Curtis's marginal tax rate is 28%. How much explicit tax would Curtis incur on interest earned on the Initech, Inc. bond?

Accepted Answer

(250,000 × .09) × 0.28 = $6,300

Question 6

Oswald is beginning his first tax course and does not really have a solid understanding of the role that taxes play in various decisions. Please describe for Oswald the various types of decisions that taxes may influence.

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Question 7

Leonardo earns $80,000 of taxable income. He also has $15,000 in city of Tulsa bonds. His wife, Theresa, earns $50,000 of taxable income. Eliminating the current system of withholding income taxes directly from employee paychecks would:

Accepted Answer

Eliminating the current system of withholding income taxes directly from employee paychecks would violate the convenience criterion of federal taxation, as it would require taxpayers to make large lump-sum payments instead of spreading out their tax liability throughout the year. While eliminating withholding may increase compliance by reducing errors, it would likely make collection of federal income taxes more difficult and time-consuming. Therefore, only choice A is the best answer.

Question 8

Mandy, the mayor of Bogart and a strong advocate of a clean downtown, is proposing an increase in the city sales tax from 7% to 50% on all packs of chewing gum purchased in Bogart. Based on the current gum sales, Mandy estimates that this tax will actually reduce the tax revenue on gum sales. What type of forecasting is Mandy using to derive her tax revenue estimates? What "effect" is her estimate based on? Does this necessarily imply that Mandy will be happy given her desire to have a clean downtown?

Accepted Answer

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Question 9

Curtis invests $250,000 in a city of Athens bond that pays 7% interest. Alternatively, Curtis could have invested the $250,000 in a bond recently issued by Initech, Inc. that pays 9% interest with similar risk as the city of Athens bond. Assume that Curtis's marginal tax rate is 28%. How much implicit tax would Curtis pay on the city of Athens bond?

Accepted Answer

The implicit tax equals the difference in pre-tax income earned from a similar (same risk) bond. In this case: (250,000 × .09) - (250,000 × .07) = $5,000.

Question 10

Although the primary purpose of a tax system is to raise revenue, Congress uses the federal tax system for other purposes as well. Describe the other ways in which Congress uses the federal tax system. Be specific.

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Question 11

There are several different types of tax rates that taxpayers might use in different contexts. Describe each tax rate and how a taxpayer might use it.

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Question 12

Bart is contemplating starting his own business. His new business would operate as a sole proprietorship and would require hiring several employees. Describe the employment-related taxes that Bart should be aware of as he starts his new business as a self-employed business owner.

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Question 13

Milton and Rocco are having a heated debate regarding a national sales tax. Milton argues that a national sales tax is a proportional, vertically equitable tax. Rocco argues that a national sales tax would be a regressive, vertically inequitable tax. Explain both sides of the argument.

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Question 14

Heather, a single taxpayer who files as a head of household, earns $60,000 in taxable income and $5,000 in interest from an investment in city of Oxford Bonds. Using the U.S. tax rate schedule for year 2016, how much federal tax will she owe? What is her average tax rate? What is her effective tax rate? What is her current marginal tax rate? If Heather has an additional $20,000 of tax deductions, what is her marginal tax rate on these deductions? (Round the tax rates to 2 decimal places, e.g., .12345 as 12.35%)

Accepted Answer

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Question 15

Raquel recently overheard two journalism students discussing the merits of the federal tax system. One student offered as an example of unfairness the spouse of a well-known politician who paid little income tax as most of the spouse's income was earned in the form of municipal bond interest. What type of taxes is the journalism student considering in his example? What type of taxes is he ignoring? Define each type of tax. What role does each type of tax play in calculating relative tax burdens? What role does each type of tax play in evaluating fairness?

Accepted Answer

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Question 16

Jackson has the choice to invest in city of Mitchell bonds or Sundial, Inc. corporate bonds that pay 10% interest. Jackson is a single taxpayer who earns $55,000 annually. Assume that the city of Mitchell bonds and the Sundial, Inc. bonds have similar risk. Assume the original facts as given except that Jackson is a head of household taxpayer and the city of Mitchell pays interest of 7.8%. How would you advise Jackson to invest his money?

Accepted Answer

Implicit tax on City of Mitchell bonds: 10% - 7.8% = 2.2%, Explicit tax on Sundial, Inc. bonds: 10% × .25 = 2.5%.

Question 17

Curtis invests $250,000 in a city of Athens bond that pays 7% interest. Alternatively, Curtis could have invested the $250,000 in a bond recently issued by Initech, Inc. that pays 9% interest with similar risk as the city of Athens bond. Assume that Curtis's marginal tax rate is 28%. What is Curtis's after-tax rate of return on the city of Athens bond?

Accepted Answer

The after-tax rate of return is the same as the pre-tax rate because the interest from municipal bonds is tax exempt.

Question 18

Leonardo earns $80,000 of taxable income. He also has $15,000 in city of Tulsa bonds. His wife, Theresa, earns $50,000 of taxable income. If Susie earns $750,000 in taxable income and files as head of household for year 2016, what is Susie's average tax rate (rounded)?

Accepted Answer

[$125,936 + .396($750,000 - $441,000)]/750,000 = 33.11%

Question 19

Ricky and Lucy are debating several types of taxes. Their debate has focused on the different types of tax rate structures and whether they are "fair." Please define each tax rate structure, provide examples of each structure, and discuss how each structure may be viewed with respect to vertical equity.

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Question 20

Jonah, a single taxpayer, earns $150,000 in taxable income and $10,000 in interest from an investment in city of Denver Bonds. Using the U.S. tax rate schedule for year 2016, how much federal tax will he owe? What is his average tax rate? What is his effective tax rate? What is his current marginal tax rate? If Jonah earned an additional $40,000 of taxable income, what is his marginal tax rate on this income? (Round the tax rates to 2 decimal places, e.g., .12345 as 12.35%)

Accepted Answer

The answer of Jonah, a single taxpayer, earns $150,000 in...

Quiz 1: An Introduction to Tax