Question 1

One of the most difficult issues associated with trying to structure a tax policy to satisfy horizontal equity is determining

Accepted Answer

A)   whether or not a taxpayer falls within the highest income quintile.
B)   the level of transfer payments made to low-income groups.
C)   the source of income for taxpayers.
D)   what differences are relevant to a family's ability to pay.E) None of the above
F) B) and C)

Question 2

Table 12-10 
-Refer to Table 12-10. If Si has $100,000 in taxable income, his tax liability will be

Accepted Answer

A)   $838.
B)   $3,844.
C)   $12,100.
D)   $21,709.E) All of the above
F) A) and B)

Question 3

Suppose Luke values a scoop of Italian gelato at $4. Leia values a scoop of Italian gelato at $6. The pre-tax price of a scoop of Italian gelato is $2. The government imposes a "fat tax" of $3 on each scoop of Italian gelato, and the price rises to $5. The deadweight loss from the tax is

Accepted Answer

A)   $1.
B)   $2.
C)   $3.
D)   $4.E) B) and D)
F) None of the above

Question 4

If revenue from a gasoline tax is used to build and maintain public roads, the gasoline tax may be justified on the basis of

Accepted Answer

A)   the benefits principle.
B)   the ability-to-pay principle.
C)   vertical equity.
D)   horizontal equity.E) A) and B)
F) B) and D)

Question 5

Table 12-1 
-Refer to Table 12-1. Assume that the price of a weekend ski pass is $45 and that the price reflects the actual unit cost of providing a weekend of skiing. What is the value of the surplus that accrues to all four skiers from their weekend trip?

Accepted Answer

A)   $75
B)   $105
C)   $185
D)   $215E) C) and D)
F) All of the above

Question 6

Table 12-10 
-Refer to Table 12-10. If Si has $100,000 in taxable income, his average tax rate is

Accepted Answer

A)   13.7%.
B)   15.2%.
C)   21.7%.
D)   28.3%.E) A) and D)
F) All of the above

Question 7

Lump-sum taxes are rarely used in the real world because

Accepted Answer

A)   while lump-sum taxes have low administrative burdens, they have high deadweight losses.
B)   while lump-sum taxes have low deadweight losses, they have high administrative burdens.
C)   lump-sum taxes are often viewed as unfair because they take the same amount of money from both poor and rich.
D)   lump-sum taxes are very inefficient.E) C) and D)
F) None of the above

Question 8

If we want to gauge the sacrifice made by a taxpayer, we should use the

Accepted Answer

A)   average tax rate.
B)   marginal tax rate.
C)   lump-sum tax rate.
D)   sales tax rate.E) All of the above
F) B) and C)

Question 9

Taxes on specific goods such as cigarettes, gasoline, and alcoholic beverages are called

Accepted Answer

A)   sales taxes.
B)   excise taxes.
C)   social insurance taxes.
D)   consumption taxes.E) C) and D)
F) B) and C)

Question 10

Because taxes distort incentives, they typically result in

Accepted Answer

A)   deadweight losses.
B)   reductions in consumer surplus.
C)   reductions in producer surplus.
D)   All of the above are correct.E) B) and C)
F) C) and D)

Question 11

As tax laws become more complex,

Accepted Answer

A)   the administrative burden of taxes will increase.
B)   compliance costs are likely to decrease.
C)   the government will collect more in tax revenue.
D)   the amount of tax revenue lost to tax evasion will decrease.E) A) and B)
F) A) and C)

Question 12

Table 12-20
The following table presents the total tax liability for an unmarried taxpayer under four different tax schedules for the income levels shown. 
-Refer to Table 12-20. Which tax schedules are proportional?

Accepted Answer

A)   Tax Schedule B only
B)   Tax Schedule B and Tax Schedule C
C)   Tax Schedule D only
D)   Tax Schedule A and Tax Schedule BE) A) and C)
F) None of the above

Question 13

In the United States, the payroll tax is also called a

Accepted Answer

A)   dividend income tax.
B)   social insurance tax.
C)   value added tax.
D)   capital gains tax.E) A) and D)
F) None of the above

Question 14

Table 12-2 
-Refer to Table 12-2. Suppose that the government imposes a $2 tax on delights, causing the price to increase from $4.00 to $6.00. Total consumer surplus

Accepted Answer

A)   falls by less than the tax revenue generated.
B)   falls by more than the tax revenue generated.
C)   falls by the same amount as the tax revenue generated.
D)   will not fall since Jennifer will no longer be in the market.E) B) and C)
F) B) and D)

Question 15

Vertical and horizontal equity are widely accepted and applying them to evaluate a tax system is always straightforward.

Accepted Answer

A) True 
 B)False

Question 16

A person's tax obligation divided by her income is called her

Accepted Answer

A)   marginal social tax rate.
B)   marginal private tax rate.
C)   marginal tax rate.
D)   average tax rate.E) A) and C)
F) None of the above

Question 17

Which of the following statements is not correct?

Accepted Answer

A)   All states have state income taxes, but the percentages vary widely.
B)   Sales taxes and property taxes are important revenue sources for state and local governments.
C)   Medicare spending has increased because the percentage of the population that is elderly and the cost of healthcare have both increased.
D)   A budget deficit occurs when government spending exceeds government receipts.E) C) and D)
F) B) and D)

Question 18

Table 12-3 
-Refer to Table 12-3. What is the marginal tax rate for a person who makes $60,000?

Accepted Answer

A)   20%
B)   30%
C)   40%
D)   50%E) A) and D)
F) All of the above

Question 19

Corporate profits are

Accepted Answer

A)   included in payroll taxes.
B)   exempt from taxes.
C)   taxed twice, once as profit and once as dividends.
D)   taxed to pay for Medicare.E) All of the above
F) A) and C)

Question 20

Table 12-9
United States Income Tax Rates for a Single Individual, 2012 and 2013. 
-Refer to Table 12-9. Ruby Sue is a single person whose taxable income is $100,000 a year. What is her marginal tax rate in 2012?

Accepted Answer

A)   15%
B)   28%
C)   31%
D)   36%E) All of the above
F) None of the above

Exam 12: The Design of the Tax System

In the United States, the payroll tax is also called a

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One of the most difficult issues associated with trying to structure a tax policy to satisfy horizontal equity is determining

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Table 12-3 -Refer to Table 12-3. What is the marginal tax rate for a person who makes $60,000?

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As tax laws become more complex,

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Table 12-2 -Refer to Table 12-2. Suppose that the government imposes a $2 tax on delights, causing the price to increase from $4.00 to $6.00. Total consumer surplus

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Table 12-20 The following table presents the total tax liability for an unmarried taxpayer under four different tax schedules for the income levels shown. -Refer to Table 12-20. Which tax schedules are proportional?

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Because taxes distort incentives, they typically result in

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Taxes on specific goods such as cigarettes, gasoline, and alcoholic beverages are called

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Table 12-1 -Refer to Table 12-1. Assume that the price of a weekend ski pass is $45 and that the price reflects the actual unit cost of providing a weekend of skiing. What is the value of the surplus that accrues to all four skiers from their weekend trip?

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Vertical and horizontal equity are widely accepted and applying them to evaluate a tax system is always straightforward.

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A person's tax obligation divided by her income is called her

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Lump-sum taxes are rarely used in the real world because

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If revenue from a gasoline tax is used to build and maintain public roads, the gasoline tax may be justified on the basis of

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If we want to gauge the sacrifice made by a taxpayer, we should use the

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Which of the following statements is not correct?

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Table 12-10 -Refer to Table 12-10. If Si has $100,000 in taxable income, his average tax rate is

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Corporate profits are

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Table 12-9 United States Income Tax Rates for a Single Individual, 2012 and 2013. -Refer to Table 12-9. Ruby Sue is a single person whose taxable income is $100,000 a year. What is her marginal tax rate in 2012?

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Table 12-10 -Refer to Table 12-10. If Si has $100,000 in taxable income, his tax liability will be

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Suppose Luke values a scoop of Italian gelato at $4. Leia values a scoop of Italian gelato at $6. The pre-tax price of a scoop of Italian gelato is $2. The government imposes a "fat tax" of $3 on each scoop of Italian gelato, and the price rises to $5. The deadweight loss from the tax is

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