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Exam 12: The Design of the Tax System

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Question 61

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Which of the following are taxed?

A) Both corporate profits and dividends shareholders receive
B) Corporate profits but not dividends shareholders receive
C) Dividends shareholders receive but not corporate profits
D) Neither corporate profits nor dividends shareholders receive

E) A) and B)
F) A) and C)

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Question 62

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Horizontal and vertical equity are the two primary measures of efficiency of a tax system.

A) True
B) False

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Question 63

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Sue earns income of $80,000 per year. Her average tax rate is 50 percent. Sue paid $5,000 in taxes on the first $30,000 she earned. What was the marginal tax rate on the first $30,000 she earned, and what was the marginal tax rate on the remaining $50,000?

The United States federal government has a large budget deficit. Long-term projections suggest that under current law, taxes, as a percentage of GDP, will __________ and government spending, as a percentage of GDP, will __________.

A consumption tax is a tax on

The U.S. federal government collects about one-half of the taxes in our economy.

The U.S. tax burden is high compared to many European countries..

A lump-sum tax would take different amounts from the poor and the rich.

Over the past 100 years, as the U.S. economy's income has grown,

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

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

Under a regressive tax system, the marginal tax rate for high income taxpayers is

Table 12-6 The table below provides information on the four households that make up a small economy and how much they would pay in taxes under three types of taxes. ​ ​ -Refer to Table 12-6. In this economy Tax C exhibits

Use Table A to complete Table B. $\begin{array}{l}\text { TABLE}{A }\\\begin{array} { | l | l | } \hline \text { On Taxable Income } & \text { The Tax Rate Is } \\\hline \text { Up to } \$ 27,050 & 15.0 \% \\\hline \text { From } \$ 27,051 \text { to } \$ 65,550 & 27.5 \% \\\hline \text { From } \$ 65,551 \text { to } \$ 136,750 & 30.5 \% \\\hline \text { From } \$ 136,751 \text { to } \$ 297,350 & 35.5 \% \\\hline \text { Over } \$ 297,350 & 39.1 \% \\\hline\end{array}\end{array}$ $\begin{array}{l}\text { TABLE B }\\\begin{array} { | l | l | l | l | } \hline \text { Taxpayer } & \text { Income } & \text { Tax Amount } & \text { Average Tax Rate } \\\hline \text { John } & \$ 52,700 & & \\\hline \text { Todd } & \$ 132,500 & & \\\hline \text { Glen } & \$ 237,000 & & \\\hline \text { Jake } & \$ 315,250 & & \\\hline\end{array}\end{array}$

With a lump-sum tax, the

A budget deficit occurs when government receipts fall short of government spending.

Suppose a recent increase in federal gasoline taxes is estimated to cause a $150 million reduction in the total surplus (consumer plus producer surplus) in the gasoline market. If tax revenues increased by $100 million, what is the deadweight loss associated with the tax? As a result of the tax, 10,000 people sold their cars and started riding their bicycles to work. How much of the burden of the deadweight loss is incurred by the bicycle riders?

The amount of income tax owed by a family is

Which of the following best describes the case when taxes can be justified?

Table 12-1 ​ ​ $\begin{array} { | c | c | } \hline \text { Person } & \begin{array} { c } \text { Value of a White Water Rafting } \\\text { Trip } \\\text { (Dollars) }\end{array} \\\hline \text { Ken } & 150 \\\hline \text { Alex } & 120 \\\hline \text { Brenda } & 90 \\\hline \text { Rob } & 60 \\\hline\end{array}$ -Refer to Table 12-1. Assume that the price of a white water rafting trip pass is $55 and that the price reflects the actual unit cost of the trip. Suppose the government imposes a tax of $12 on white water rafting, which raises the price to $67. What is the value of the surplus that accrues to all four participants?