Question 1

In the United States, the marginal tax rate on individual federal income tax

Accepted Answer

The marginal tax rate on individual federal income tax in the United States increases as income increases. This is because the US tax system is a progressive tax system, meaning that taxpayers with higher income are subject to higher tax rates.

Question 2

Sue earns income of $80,000 per year. Her average tax rate is 40 percent. Sue paid $4,500 in taxes on the first $30,000 she earned. What was the marginal tax rate on the rest of her income?

Accepted Answer

The answer of Sue earns income of $80,000 per year....

Question 3

If your income is $40,000 and your income tax liability is $5,000, your marginal tax rate is

Accepted Answer

The marginal tax rate is the rate at which your last dollar of income is taxed, which cannot be determined solely from total income and total tax liability. Additional information about the tax brackets and how income is distributed across those brackets is needed.

Question 4

Nancy paid a tax of $0.50 on the last dollar she earned in 1999. Nancy's marginal tax rate in 1999 was

Accepted Answer

The answer of Nancy paid a tax of $0.50 on...

Question 5

Suppose the government imposes a tax of 10 percent on the first $40,000 of income and 20 percent on all income above $40,000. What are the tax liability and the marginal tax rate for a person whose income is $50,000?

Accepted Answer

The tax liability for a person whose income is $50,000 can be calculated as follows:
Tax on first $40,000 = 10% x $40,000 = $4,000
Tax on remaining $10,000 = 20% x $10,000 = $2,000
Total tax liability = $4,000 + $2,000 = $6,000
The marginal tax rate is the tax rate on the last dollar of income earned. Since the tax rate above $40,000 is 20%, the marginal tax rate for a person whose income is $50,000 is 20%. Therefore, option D is the correct answer.

Question 6

Suppose the government imposes a tax of 10 percent on the first $40,000 of income and 20 percent on all income above $40,000. What are the tax liability and the marginal tax rate for a person whose income is $30,000?

Accepted Answer

The answer of Suppose the government imposes a tax of...

Question 7

Scenario 12-4
A taxpayer faces the following tax rates on her income: 20 percent of the first $40,000 of her income; 30 percent of all her income above $40,000.
-Refer to Scenario 12-4. The taxpayer faces a marginal tax rate of

Accepted Answer

The taxpayer faces a marginal tax rate of 20% only on the portion of her income that falls within the first tax bracket ($0-$40,000). Therefore, when her income rises from $30,000 to $30,001, she will only incur an additional 20% tax on the amount above $30,000, which is $1. This results in a marginal tax rate of 20%.

Question 8

Scenario 12-4
A taxpayer faces the following tax rates on her income: 20 percent of the first $40,000 of her income; 30 percent of all her income above $40,000.
-Refer to Scenario 12-4. The taxpayer faces

Accepted Answer

The answer of Scenario 12-4
A taxpayer faces the following tax...

Question 9

Scenario 12-4
A taxpayer faces the following tax rates on her income: 20 percent of the first $40,000 of her income; 30 percent of all her income above $40,000.
-Refer to Scenario 12-4. At what level of income would the taxpayer's marginal tax rate be 30 percent and her average tax rate be 25 percent?

Accepted Answer

The answer of Scenario 12-4
A taxpayer faces the following tax...

Question 10

As tax laws become more complex,

Accepted Answer

As tax laws become more complex, it becomes more difficult for taxpayers to understand and comply with them. This leads to an increase in the administrative burden of taxes, which refers to the cost and effort required for taxpayers to comply with tax laws and for the government to enforce them. Therefore, option A is the best answer.

Question 11

Sue earns income of $80,000 per year. Her average tax rate is 30 percent. Sue paid 20 percent in taxes on the first $30,000 she earned. What was the marginal tax rate on the rest of her income?

Accepted Answer

To find out Sue's marginal tax rate, we need to know the tax rate applied to the next dollar she earns. Since Sue paid 20 percent on the first $30,000, she paid $6,000 in taxes ($30,000 x 0.20 = $6,000). This means that of the $80,000 she earned, she had $50,000 left to be taxed at a higher rate.

To find out what that rate is, we can use the formula:

Marginal tax rate = (tax paid on next dollar ÷ additional income earned)

To calculate the tax paid on the next dollar, we can subtract Sue's income over $30,000 from her total taxes paid:

$6,000 (total taxes paid) - $6,000 (taxes paid on first $30,000) = $0 (taxes paid on next dollar)

To calculate the additional income earned, we can subtract $30,000 from Sue's total income:

$80,000 (total income) - $30,000 (income taxed at 20%) = $50,000 (additional income taxed at marginal rate)

Now we can use the formula:

Marginal tax rate = ($0 ÷ $50,000) = 0%

This means that Sue's marginal tax rate on the rest of her income (above $30,000) is 0%. However, her average tax rate is still 30%, since she paid $24,000 in taxes on a total income of $80,000.

Question 12

Tim earns income of $60,000 per year and pays $21,000 per year in taxes. Tim paid 20 percent in taxes on the first $30,000 he earned. What was the marginal tax rate on the second $30,000 he earned?

Accepted Answer

The answer of Tim earns income of $60,000 per year...

Question 13

Because the marginal tax rate rises as income rises,

Accepted Answer

The statement in the question is accurate, and therefore higher income families, in general, pay a larger percentage of their income in taxes.

Question 14

'The U.S. tax code gives preferential treatment to investors in municipal bonds. This is an example of

Accepted Answer

A tax loophole is a provision in the tax law that allows taxpayers to reduce their tax burden or avoid certain taxes altogether. The preferential treatment given to investors in municipal bonds is an example of a tax loophole because it provides a tax benefit to a specific group of taxpayers.

Question 15

James earns income of $90,000 per year. His average tax rate is 40percent. James paid $5,500 in taxes on the first $40,000 he earned. What was the marginal tax rate on the rest of his income?

Accepted Answer

The answer of James earns income of $90,000 per year....

Question 16

A person's marginal tax rate equals

Accepted Answer

Marginal tax rate refers to the rate at which an additional dollar of income is taxed. It is calculated as the increase in taxes a person would pay as a percentage of the rise in her income. Option A is incorrect because tax obligation divided by average tax rate gives the taxable income, not the marginal tax rate. Option C is incorrect because it gives the average tax rate, not the marginal tax rate. Option D is incorrect because it refers to the effect of a change in average tax rate, not marginal tax rate.

Question 17

Tax systems that impose recordkeeping requirements on taxpayers are said to have a(n)

Accepted Answer

Tax systems that require taxpayers to maintain records of their financial transactions place an administrative burden on them. This burden often requires time and effort on the taxpayers' part to keep accurate and organized records to comply with tax laws. This burden also places additional demands on tax authorities to administer and enforce recordkeeping requirements.

Question 18

If we want to gauge how much the income tax system distorts incentives, we should use the

Accepted Answer

The marginal tax rate is the best choice because it measures the increase in tax paid on an additional unit of income earned. It reflects how much each additional dollar earned is taxed and therefore more accurately measures the effect of the income tax system on individual incentives. The higher the marginal tax rate, the greater the distortion of incentives.

Question 19

The deadweight loss of an income tax is determined by the

Accepted Answer

The deadweight loss of an income tax is determined by the marginal tax rate, which measures the incentive effects of taxation on labor supply, saving, and investment decisions. The higher the marginal tax rate, the greater the disincentive for individuals and businesses to engage in economic activity, leading to a loss of efficiency and welfare. The amount of total tax revenue, average tax rate, and ability-to-pay principle are not relevant factors for calculating deadweight loss.

Question 20

Which of the following is not an administrative burden of our tax system?

Accepted Answer

Paying the taxes owed is not considered an administrative burden, as it is the main purpose of the tax system. The other options listed (A, B, and D) all involve additional time, resources, or effort that taxpayers must undertake to comply with tax laws.

Quiz 12: The Design of the Tax System