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% to 30%,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.)

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

Given the following tax structure,what amount of tax would need to be assessed on Carrie to make the tax horizontally equitable? What is the minimum tax that Simon should pay to make the tax structure vertically equitable based on Fantasia's tax rate? This would result in what type of tax rate structure?   Texpayer Salary Total Tax Fantasia 20,000 1,500 Simon 30,000 2,000 Carrie 20,000 ???  

Horizontal equity is defined in terms of taxpayers in similar situations whereas vertical equity is defined in terms of taxpayers in different situations.

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

Earmarked taxes are:

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

In terms of effective tax rates,the sales tax can be viewed as a regressive tax.

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 instead had $30,000 of additional tax deductions for year 2018,his marginal tax rate (rounded)on the deductions would be: (Use tax rate schedule)

Namratha has the choice between investing in a city of Watkinsville bond at 4.5% or a Moe's,Inc.bond at 7%.Assuming that both bonds have the same non-tax characteristics and that Namratha has a 32% 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?

A common example of an employment related tax is the Medicare tax.

Jackson has the choice to invest in city of Mitchell bonds or Sundial,Inc.corporate bonds that pay 10% interest.Jackson is a single taxpayer who earns $55,000 annually.Assume that the city of Mitchell bonds and the Sundial,Inc.bonds have similar risk. Assume the original facts as given except that Jackson is a head of household taxpayer and the city of Mitchell pays interest of 8%.How would you advise Jackson to invest his money?

Self-employment taxes are charged on self-employment income in addition to any federal income tax.

If Susie earns $750,000 in taxable income,how much tax will she pay as a single taxpayer for year 2018? (Use tax rate schedule)

Ricky and Lucy are debating several types of taxes.Their debate has focused on the different types of tax rate structures and whether they are "fair." Please define each tax rate structure,provide examples of each structure,and discuss how each structure may be viewed with respect to vertical equity.

Sin taxes are:

One benefit of a sin tax (e.g.,a tax on cigarettes)is that it should increase the demand for the products being taxed.

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

In a proportional (flat)tax rate system,the marginal tax rate will always equal the average tax rate.

Taxes influence business decisions such as where a business should locate or how a business should be structured.