Exam 1: An Introduction to Tax

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%. How much implicit tax would Curtis pay on the city of Athens bond?

Consider the following tax rate structure.Is it horizontally equitable? Why or why not? Is it vertically equitable? Why or why not?   Taxpayer Salary Tatal Tax Moe 20,000 1,500 Larty 40,000 8,500 Curly 100,000 25,500

The substitution effect:

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%. How much explicit tax would Curtis incur on interest earned on the Initech,Inc.bond?

Raquel recently overheard two journalism students discussing the merits of the federal tax system.One student offered as an example of unfairness the spouse of a well-known politician who paid little income tax as most of the spouse's income was earned in the form of municipal bond interest.What type of taxes is the journalism student considering in his example? What type of taxes is he ignoring? Define each type of tax.What role does each type of tax play in calculating relative tax burdens? What role does each type of tax play in evaluating fairness?

Taxes influence many types of business decisions but generally do not influence personal decisions.

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

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%. If Curtis invested in the Initech,Inc.bonds,what would be his after-tax rate of return from this investment?

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. What is Leonardo and Theresa's effective tax rate for year 2018 (rounded)? (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.What is Manny's current marginal tax rate for year 2018? (Use tax rate schedule)

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

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 current marginal tax rate? (Use tax rate schedule) 

Heather,a single taxpayer who files as a head of household,earns $60,000 in taxable income and $5,000 in interest from an investment in city of Oxford Bonds.Using the U.S.tax rate schedule for year 2018,how much federal tax will she owe? What is her average tax rate? What is her effective tax rate? What is her current marginal tax rate? If Heather has an additional $20,000 of tax deductions,what is her marginal tax rate on these deductions? (Round the tax rates to 2 decimal places,e.g.,.12345 as 12.35%)(Use tax rate schedule).