Exam 1: An Introduction to Tax

There are several different types of tax rates that taxpayers might use in different contexts. Describe each tax rate and how a taxpayer might use it.

Which of the following is a tax? I. A 1 percent special sales tax for funding local road construction. II) A fee paid to the state for a license to practice as an attorney. III) An income tax imposed by Philadelphia on persons working within the city limits. IV) A special property assessment for installing a new water system in the taxpayer's neighborhood.

Which of the following principles encourages a vertically equitable tax system?

Jackson has the choice to invest in city of Mitchell bonds or Sundial, Incorporated corporate bonds that pay 5.4 percent interest. Jackson is a single taxpayer who earns $45,000 annually. Assume that the city of Mitchell bonds and the Sundial, Incorporated bonds have similar risk. What interest rate would the city of Mitchell have to pay in order to make Jackson indifferent between investing in the city of Mitchell and the Sundial, Incorporated bonds for 2020? (Use tax rate schedule.)

Manny, a single taxpayer, earns $65,000 per year in taxable income and an additional $12,000 per year in city of Boston bonds. If Manny earns an additional $35,000 in taxable income in 2020, what is his marginal tax rate on this income? (Use tax rate schedule.)(Round your final answer to two decimal places.)

Curtis invests $250,000 in a city of Athens bond that pays 7 percent interest. Alternatively, Curtis could have invested the $250,000 in a bond recently issued by Initech, Incorporated that pays 9 percent interest with similar risk as the city of Athens bond. Assume that Curtis's marginal tax rate is 24 percent. How much explicit tax would Curtis incur on interest earned on the Initech, Incorporated bond?

Which of the following is considered a tax?

Marc, a single taxpayer, earns $61,200 in taxable income and $5,120 in interest from an investment in city of Birmingham bonds. Using the U.S. tax rate schedule for 2020, how much federal tax will he owe? (Round your final answer to the nearest whole dollar.)(Use tax rate schedule.)

In addition to raising revenues, specific U.S. taxes may have other objectives (e.g., economic or social objectives).

If Susie earns $762,000 in taxable income and files as head of household for year 2020, what is Susie's average tax rate? (Use tax rate schedule.)(Round your final answer to two decimal places.)

Marc, a single taxpayer, earns $61,400 in taxable income and $5,140 in interest from an investment in city of Birmingham bonds. Using the U.S. tax rate schedule for 2020, what is his average tax rate? (Round your final answer to two decimal places.)(Use tax rate schedule.)

Nick and Jessica are married taxpayers that file married filing separately. Jessica earns $250,000 of taxable income per year. Nick earns $130,000 of taxable income per year. Using the appropriate U.S. tax rate schedule for year 2020, how much tax does each of them pay? What are their marginal and average tax rates? How much tax would they save, if any, if they filed jointly? (Round the tax rates to two decimal places, e.g., .12345 as 12.35 percent.)(Use tax rate schedule.)

Milton and Rocco are having a heated debate regarding a national sales tax. Milton argues that a national sales tax is a proportional, vertically equitable tax. Rocco argues that a national sales tax would be a regressive, vertically inequitable tax. Explain both sides of the argument.

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 2020, 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.)

Jonah, a single taxpayer, earns $152,400 in taxable income and $12,400 in interest from an investment in city of Denver bonds. Using the U.S. tax rate schedule for year 2020, how much federal tax will he owe? What is his average tax rate? What is his effective tax rate? What is his current marginal tax rate? If Jonah earned an additional $42,400 of taxable income, what is his 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.)

Nelson has the choice between investing in a city of Fruithurst bond at 4.3 percent or a J.B. Ribs, Incorporated bond at 5.6 percent. Assuming that both bonds have the same nontax characteristics and that Nelson has a 40 percent marginal tax rate, in which bond should he invest? What interest rate offered by J.B. Ribs, Incorporated would make Nelson indifferent between investing in the two bonds?

Congress would like to increase tax revenues by 25 percent. Assume that the average taxpayer in the United States earns $66,000 and pays an average tax rate of 14 percent. If the income effect is larger than the substitution effect, what average tax rate will result in a 25 percent increase in tax revenues? This is an example of what type of forecasting?

The city of Granby, Colorado, recently enacted a 1.5 percent surcharge on vacation cabin rentals that will fund the city's new elementary school. This surcharge is an example of _____.

Which of the following is not one of the basic tax rate structures?

Nelson has the choice between investing in a city of Fruithurst bond at 4 percent or a J.B. Ribs, Incorporated bond at 6.5 percent. Assuming that both bonds have the same nontax characteristics and that Nelson has a 40 percent marginal tax rate, in which bond should he invest? What interest rate offered by J.B. Ribs, Incorporated would make Nelson indifferent between investing in the two bonds?