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Exam 1: An Introduction to Tax

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Question 51

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Which of the following is not an example of a graduated tax rate structure?

A) U.S. Federal Income Tax
B) Regressive tax rate structure
C) Proportional tax rate structure
D) Progressive tax rate structure
E) None of the choices are correct

F) A) and E)
G) A) and B)

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Question 52

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One key characteristic of a tax is that it is a required payment to a governmental agency.

A) True
B) False

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Question 53

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A taxpayer's average tax rate is the most appropriate tax rate to use in tax planning.

Jed Clampett is expanding his family-run beer distributorship into Georgia or Tennessee. His parents began the business many years ago and now three generations of Clampetts work in thefamily business. Jed will relocate the entire family (his parents, spouse, children, etc.) to either state after the move. What types of taxes may influence his decision of where to locate his business? What non-tax factors may influence the decision?

Excise taxes are typically levied on the value of a good purchased.

The tax base for the federal income tax is taxable income.

Taxes influence business decisions such as where a business should locate or how abusiness should be structured.

In terms of effective tax rates, the sales tax can be viewed as a regressive tax.

Manny, a single taxpayer, earns $65,000 per year in taxable income and an additional $12,00704) per year in city of Boston bonds.If Manny earns an additional $35,000 in taxable income in year 2017, what is his marginal tax rate on this income? (Use tax rate schedule.)

Leonardo, who is married but files separately, earns $80,000 of taxable income. He also has75) $15,000 in city of Tulsa bonds. His wife, Theresa, earns $50,000 of taxable income.If Leonardo earned an additional $30,000 of taxable income this year, what would be the marginal tax rate on the extra income for year 2017? (Use tax rate schedule.)

Which of the following is true regarding real property taxes and personal property taxes?

Eliminating the current system of withholding income taxes directly from employee paychecks would:

Congress would like to increase tax revenues by 20 percent. Assume that the average taxpayer in theUnited States earns $80,000 and pays an average tax rate of 17.5%. If the income effect is larger than the substitution effect, what average tax rate will result in a 20 percent increase in taxrevenues? This is an example of what type of forecasting?

Which of the following federal government actions would make sense if a tax system fails to provide sufficient tax revenue?

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?

Estimated tax payments are one way the federal income tax system addresses the"certainty" criterion in evaluating tax systems.

Property taxes may be imposed on both real and personal property.

Ariel invests $50,000 in a city of Las Vegas bond that pays 5% interest. Alternatively, Ariel could have invested the $50,000 in a bond recently issued by Jittery Joe's, Inc. that pays 8% interest with similar non-tax characteristics as the city of Las Vegas bond (e.g., similar risk). Assume that Ariel's marginal tax rate is 25%. What is her after-tax rate of return for the city of Las Vegas bond? For the Jittery Joe's, Inc. bond? How much explicit tax does Ariel pay on the city of Las Vegas bond? How much implicit tax does she pay on the city of Las Vegas bond? How much explicit tax would she have paid on the Jittery Joe's, Inc. bond? Which bond should she choose?

Which of the following is false?

Dynamic forecasting does not take into consideration taxpayers' responses to a tax change when estimating tax revenues.