Exam 1: An Introduction to Tax

Junior earns $80,000 taxable income as a regional circuit stock car driver and is taxed at an average rate of 25 percent (i.e., $20,000 of tax). If Congress increases the income tax rate such that Junior's average tax rate increases from 25 percent to 30 percent, how much more income tax will he pay assuming that the income effect is larger than the substitution effect? What effect will this tax rate change have on the tax base and tax collected? What will happen to the government's tax revenues if Junior chooses to spend more time pursuing his other passions besides work (e.g., earns only $60,000 in taxable income)in response to the tax rate change? What is the term that describes this type of reaction to a tax rate increase? (Round your answers to two decimal places.)

Marc, a single taxpayer, earns $60,000 in taxable income and $5,000 in interest from an investment in city of Birmingham bonds. Using the U.S. tax rate schedule for year 2019, what is his current marginal tax rate? (Use tax rate schedule.)

Marc, a single taxpayer, earns $60,000 in taxable income and $5,000 in interest from an investment in city of Birmingham bonds. Using the U.S. tax rate schedule for 2019, what is his average tax rate (rounded)? (Round your final answer to the nearest whole percent.)(Use tax rate schedule.)

In a regressive tax rate system, the marginal tax rate will often be greater than the average tax rate.

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

Namratha has the choice between investing in a city of Watkinsville bond at 4.5 percent or a Moe's, Inc. bond at 7 percent. Assuming that both bonds have the same nontax characteristics and that Namratha has a 32 percent marginal tax rate, in which bond should she invest? What interest rate offered by Moe's, Inc. would make Namratha indifferent between investing in the two bonds?

Fred and Wilma, married taxpayers, earn $100,000 in taxable income and $20,000 in interest from an investment in city of Bedrock bonds. Using the U.S. tax rate schedule for married filing jointly for year 2019, how much federal tax will they owe? What is their average tax rate? What is their effective tax rate? What is their current marginal tax rate? If Fred and Wilma earn an additional $40,000 of taxable income, what is their marginal tax rate on this income? (Round the tax rates to two decimal places, e.g., .12345 as 12.35 percent.)(Use tax rate schedule.)

Consider the following tax rate structures. Is it horizontally equitable? Why or why not? Is it vertically equitable? Why or why not?

The effective tax rate expresses the taxpayer's total tax as a percentage of the taxpayer's taxable and nontaxable income.

The concept of tax sufficiency:

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

Which of the following statements is true?

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

While sales taxes are quite common, currently the U.S. federal government does not impose a sales tax.

The 9^th Amendment to the U.S. Constitution removed all doubt that a federal income tax was allowed under the U.S. Constitution.

Which of the following taxes represents the largest portion of U.S. federal tax revenues?

If Susie earns $750,000 in taxable income and files as head of household for year 2019, what is Susie's average tax rate (rounded)? (Use tax rate schedule.)

Which of the following is true regarding tax-advantaged assets?

Al believes that SUVs have negative social and environmental effects because of their increased carbon monoxide emissions. He proposes eliminating sales taxes on smaller automobiles in favor of higher sales taxes levied on SUVs. Al performs some calculations and comes to the conclusion that based on the current number of SUVs owned in the U.S., exactly the same amount of total sales tax will be collected under his reformed system. Which of the following concepts explains why Al's idea may not work?

The main difficulty in calculating an income tax is determining the correct amount of the tax base.