Exam 1: An Introduction to Tax

The concept of tax sufficiency:

The income and substitution effects are two opposing effects that one could consider in static forecasting.

The state of Georgia recently increased its tax on a carton of cigarettes by $2.00.What type of tax is this?

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 24%.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?

Leonardo, who is married but files separately,earns $80,000 of taxable income.He also has $15,000 in city of Tulsa bonds.His wife,Theresa,earns $50,000 of taxable income. If Leonardo and his wife file married filing jointly in 2018,what would be their average tax rate (rounded)? (Use tax rate schedule)

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

Relative to explicit taxes,implicit taxes are much easier to estimate.

Implicit taxes are indirect taxes on tax-favored assets.

The difficulty in calculating a tax is typically in the determination of:

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

If Susie earns $750,000 in taxable income and files as head of household for year 2018,what is Susie's average tax rate (rounded)? (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 year 2018,what is his average tax rate (rounded)? (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.

The two components of the tax calculation are the tax rate and the taxpayer's status.

Curtis invests $250,000 in a city of Athens bond that pays 7% interest.Alternatively,Curtis could have invested the $250,000 in a bond recently issued by Initech,Inc.that pays 9% interest with similar risk as the city of Athens bond.Assume that Curtis's marginal tax rate is 24%. What is Curtis's after-tax rate of return on the city of Athens bond?

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 the family 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?

Although the primary purpose of a tax system is to raise revenue,Congress uses the federal tax system for other purposes as well.Describe the other ways in which Congress uses the federal tax system.Be specific.

Which of the following is considered a tax?

Taxes influence which of the following decisions?

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