Exam 1: An Introduction to Tax

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 2014, what is his current marginal tax rate?

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 a tax? I. A 1% 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.

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

The concept of tax sufficiency:

If Leonardo earned an additional $30,000 of taxable income this year, what would be the marginal tax rate (rounded) on the extra income for year 2014?

If Manny earns an additional $35,000 in taxable income in year 2014, what is his marginal tax rate (rounded) on this income?

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

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

Eliminating the current system of withholding income taxes directly from employee paychecks would:

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

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.

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

In considering the "economy" criterion in evaluating tax systems, one must consider this criterion from both the taxpayer and the government's perspective.

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

What is Curtis's after-tax rate of return on the city of Athens bond?

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

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 25%. 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?

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 2014, how much federal tax will he owe?