Exam 18: Public Choice, Taxes, and the Distribution of Income

Article Summary In 2012, Colorado and Washington legalized marijuana for recreational use, and one of the major selling points in each state's pro-marijuana campaign was the possibility of generating millions of dollars in tax revenue from sales which could be used for funding general education. The Colorado legislature was weighing a proposal to tax marijuana at 30 percent, of which 15 percent would be a sales tax on consumers and 15 percent an excise tax on growers. Washington has set a tax rate of 44 percent on consumers and 25 percent each for growers and retailers. Since the legalization of marijuana is relatively new, projecting the economic impact of its sale is difficult, leading to many questions as to the quantities that will be produced and sold and what actual tax revenues will be generated. Source: Elizabeth Dwoskin, "Colorado and Washington Try to Figure Out How to Tax Marijuana," Bloomberg Businessweek, April 26, 2013. -Between 1980 and 2011, income inequality in the United States has increased in part due to expanding international trade. How does expanding international trade contribute to income inequality?

The actual division of the burden of a tax is called

When the demand for a product is less elastic than the supply, consumers pay the majority of the tax on the product.

Logrolling refers to attempts by individuals to use government action to make themselves better off at the expense of others.

Table 18-2 -A common belief among political analysts is that someone running for his or her party's nomination for president of the United States must choose a different strategy once the nomination is secured. To be nominated, the candidate must appeal to voters from one party-Democrat or Republican-but in a general election a party's nominee must appeal to voters from both parties as well as independent voters. Which of the following offers the best explanation for this change in strategy?

The median voter theorem states that the outcome of a majority vote

What is regulatory capture?

Both presidents Kennedy and Reagan proposed significant cuts in income taxes because

A personal exemption refers to

If you pay $2,000 in taxes on an income of $20,000, and a tax of $3,500 on an income of $30,000, then over this range of income the tax is

The government of Silverado raises revenue through a general income tax paid by all its residents to operate the city's marina. The marina is used by private boat owners. This method of raising revenue to operate the marina is

Figure 18-2 Figure 18-2 shows a demand curve and two sets of supply curves, one set more elastic than the other. -Refer to Figure 18-2. If the government imposes an excise tax of $1.00 on every unit sold, the consumer's burden of the tax

Article Summary In 2012, Colorado and Washington legalized marijuana for recreational use, and one of the major selling points in each state's pro-marijuana campaign was the possibility of generating millions of dollars in tax revenue from sales which could be used for funding general education. The Colorado legislature was weighing a proposal to tax marijuana at 30 percent, of which 15 percent would be a sales tax on consumers and 15 percent an excise tax on growers. Washington has set a tax rate of 44 percent on consumers and 25 percent each for growers and retailers. Since the legalization of marijuana is relatively new, projecting the economic impact of its sale is difficult, leading to many questions as to the quantities that will be produced and sold and what actual tax revenues will be generated. Source: Elizabeth Dwoskin, "Colorado and Washington Try to Figure Out How to Tax Marijuana," Bloomberg Businessweek, April 26, 2013. -Refer to the Article Summary. Suppose the sale of marijuana is legalized in Florida, and the state decides to charge a tax of $50 per ounce on each sale, with the state claiming that retailers will bear the entire burden of this tax. Draw a graph illustrating the situation where retail outlets would bear the entire tax burden of $50 per ounce of marijuana. Explain what would need to be true about the demand for marijuana for retailers to bear the entire burden of this tax, and if this would likely occur if marijuana sales were legalized.

"Sin taxes," such as taxes on alcoholic beverages, are intended to

Consider the following methods of taxing a corporation's income: a. A flat tax, as opposed to a progressive tax, is levied on corporate profits. B. A system whereby a corporation calculates its annual profit and notifies each shareholder of her portion of the profits. The shareholder would then be required to include this amount as taxable income for her personal income tax. The corporation does not pay a tax. C. A system where the federal government continues to tax corporate income through the corporate income tax but allows individual taxpayers to receive, tax free, corporate dividends and capital gains. Which of the methods above would avoid double taxation?

Which of the following is a consequence of the voting paradox?

When the demand for a product is less elastic than the supply,

Many economists believe that when the federal government establishes an agency to regulate a particular industry, the regulated firms try to influence the agency even if these actions do not benefit the public. Economists refer to this result of government regulation by which of the following terms?

The federal government and some state governments levy taxes on specific goods such as gasoline, cigarettes and beer. These are known as

If your income is $40,000 and you pay taxes of $4,650, what is your average tax rate? Show your work.