Question 1

Regressive tax rate structures are typically considered to be vertically equitable.

Accepted Answer

A) True 
 B)False  False

Question 2

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 earned an additional $30,000 of taxable income this year, what would be the marginal tax rate (rounded) on the extra income for year 2016?

Accepted Answer

A)  27.75% 
B)  17.50% 
C)  25.00% 
D)  28.00% 
E)  None of these 
A)  27.75% 
B)  17.50% 
C)  25.00% 
D)  28.00% 
E)  None of these D

Question 3

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)

Accepted Answer

Under the current income tax, Junior has $60,000 of income after tax. If the income effect is descriptive and Congress increases tax rates so that Junior's average tax rate is 30%, Junior will need to earn $85,714.29 to continue to have $60,000 of income after tax.
After-tax income = Pre-tax income (1 - tax rate)
$60,000 = Pre-tax income (1 - .30)
Pre-tax income = $60,000/.70
Pre-tax income = $85,714.29
Junior will pay $25,714.29 in tax ($85,714.29 × .30). Accordingly, if the income effect is descriptive, the tax base and the tax collected will increase.
If Junior only earns $60,000 of taxable income, he would pay $18,000 of tax under the new tax structure . This is an example of the substitution effect, which may be descriptive for taxpayers with more disposable income who can afford to earn less and maintain a style of living.

Question 4

Leonardo 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 2016 (rounded)?

Accepted Answer

A)  15.00% 
B)  18.53% 
C)  21.11% 
D)  28.00% 
E)  None of these 
A)  15.00% 
B)  18.53% 
C)  21.11% 
D)  28.00% 
E)  None of these

Question 5

Leonardo 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 Susie earns $750,000 in taxable income and files as head of household for year 2016, what is Susie's average tax rate (rounded)?

Accepted Answer

A)  33.11% 
B)  33.78% 
C)  35.00% 
D)  39.60% 
E)  None of these 
A)  33.11% 
B)  33.78% 
C)  35.00% 
D)  39.60% 
E)  None of these

Question 6

Congress would like to increase tax revenues by 20 percent. Assume that the average taxpayer in the United States earns $80,000 and pays an average tax rate of 17.5%. If the income effect is larger than the substitution effect, what average tax rate will result in a 20 percent increase in tax revenues? This is an example of what type of forecasting?

Accepted Answer

Based on the information above, the aver

Question 7

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 7.8%. How would you advise Jackson to invest his money?

Accepted Answer

A)  Invest in Sundial, Inc. bonds because their explicit tax is greater than the implicit tax on city of Mitchell bonds. 
B)  Invest in city of Mitchell bonds because their implicit tax is greater than the explicit tax on Sundial, Inc. bonds. 
C)  Invest in Sundial, Inc. bonds because their explicit tax is less than the implicit tax on city of Mitchell bonds. 
D)  Invest in city of Mitchell bonds because their implicit tax is less than the explicit tax on Sundial, Inc. bonds. 
E)  None of these. 
A)  Invest in Sundial, Inc. bonds because their explicit tax is greater than the implicit tax on city of Mitchell bonds. 
B)  Invest in city of Mitchell bonds because their implicit tax is greater than the explicit tax on Sundial, Inc. bonds. 
C)  Invest in Sundial, Inc. bonds because their explicit tax is less than the implicit tax on city of Mitchell bonds. 
D)  Invest in city of Mitchell bonds because their implicit tax is less than the explicit tax on Sundial, Inc. bonds. 
E)  None of these.

Question 8

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. What interest rate would the city of Mitchell have to pay in order to make Jackson indifferent between investing in the city of Mitchell and the Sundial, Inc. bonds for year 2016?

Accepted Answer

A)  7.50% 
B)  10.00% 
C)  8.00% 
D)  7.20% 
E)  None of these 
A)  7.50% 
B)  10.00% 
C)  8.00% 
D)  7.20% 
E)  None of these

Question 9

The largest federal tax, in terms of revenue collected, is the social security tax.

Accepted Answer

A) True 
 B)False

Question 10

The concept of tax sufficiency:

Accepted Answer

A)  Suggests the need for tax forecasting 
B)  Suggests that a government should estimate how taxpayers will respond to changes in the current tax structure 
C)  Suggests that a government should consider the income and substitution effects when changing tax rates 
D)  All of these 
E)  None of these 
A)  Suggests the need for tax forecasting 
B)  Suggests that a government should estimate how taxpayers will respond to changes in the current tax structure 
C)  Suggests that a government should consider the income and substitution effects when changing tax rates 
D)  All of these 
E)  None of these

Question 11

Tax policy rarely plays an important part in presidential campaigns.

Accepted Answer

A) True 
 B)False

Question 12

Which of the following taxes represents the largest portion of U.S. Federal Tax revenues?

Accepted Answer

A)  Employment taxes 
B)  Corporate income taxes 
C)  Individual income taxes 
D)  Estate and gift taxes 
E)  None of these 
A)  Employment taxes 
B)  Corporate income taxes 
C)  Individual income taxes 
D)  Estate and gift taxes 
E)  None of these

Question 13

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

Accepted Answer

A) True 
 B)False

Question 14

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?

Accepted Answer

Since the city of Las Vegas bond is a ta

Question 15

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?

Accepted Answer

Taxes will affect several aspects of Jed

Question 16

A 1% charge imposed by a local government on football tickets sold is not considered a tax if all proceeds are earmarked to fund local schools.

Accepted Answer

A) True 
 B)False

Question 17

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

Accepted Answer

A) True 
 B)False

Question 18

The main difficulty in calculating an income tax is determining the correct amount of the tax base.

Accepted Answer

A) True 
 B)False

Question 19

One key characteristic of a tax is that it is a required payment to a governmental agency.

Accepted Answer

A) True 
 B)False

Question 20

There are several different types of tax rates that taxpayers might use in different contexts. Describe each tax rate and how a taxpayer might use it.

Accepted Answer

The marginal tax rate is the tax rate th

Regressive tax rate structures are typically considered to be vertically equitable.

Leonardo 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 2016 (rounded)?

Leonardo 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 Susie earns $750,000 in taxable income and files as head of household for year 2016, what is Susie's average tax rate (rounded)?

The largest federal tax, in terms of revenue collected, is the social security tax.

The concept of tax sufficiency:

Tax policy rarely plays an important part in presidential campaigns.

Which of the following taxes represents the largest portion of U.S. Federal Tax revenues?

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

A 1% charge imposed by a local government on football tickets sold is not considered a tax if all proceeds are earmarked to fund local schools.

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

The main difficulty in calculating an income tax is determining the correct amount of the tax base.

One key characteristic of a tax is that it is a required payment to a governmental agency.

There are several different types of tax rates that taxpayers might use in different contexts. Describe each tax rate and how a taxpayer might use it.

Tax Compliance , the Irs, and Tax Authorities

Tax Planning Strategies and Related Limitations

Individual Income Tax Overview, Exemptions, and Filing Status

Gross Income and Exclusions

Individual for Agi Deductions

Individual From Agi Deductions

Individual Income Tax Computation and Tax Credits

Business Income, Deductions, and Accounting Methods

Property Acquisition and Cost Recovery

Property Dispositions

Entities Overview

Corporate Formations and Operations

Corporate Nonliquidating and Liquidating Distributions

Forming and Operating Partnerships

Dispositions of Partnership Interests and Partnership Distributions

S: Corporations

Filters

Exam 1: An Introduction to Tax

Regressive tax rate structures are typically considered to be vertically equitable.

Leonardo 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 2016 (rounded)?

Leonardo 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 Susie earns $750,000 in taxable income and files as head of household for year 2016, what is Susie's average tax rate (rounded)?

The largest federal tax, in terms of revenue collected, is the social security tax.

The concept of tax sufficiency:

Tax policy rarely plays an important part in presidential campaigns.

Which of the following taxes represents the largest portion of U.S. Federal Tax revenues?

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

A 1% charge imposed by a local government on football tickets sold is not considered a tax if all proceeds are earmarked to fund local schools.

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

The main difficulty in calculating an income tax is determining the correct amount of the tax base.

One key characteristic of a tax is that it is a required payment to a governmental agency.

There are several different types of tax rates that taxpayers might use in different contexts. Describe each tax rate and how a taxpayer might use it.

Tax Compliance , the Irs, and Tax Authorities

Tax Planning Strategies and Related Limitations

Individual Income Tax Overview, Exemptions, and Filing Status

Gross Income and Exclusions

Individual for Agi Deductions

Individual From Agi Deductions

Individual Income Tax Computation and Tax Credits

Business Income, Deductions, and Accounting Methods

Property Acquisition and Cost Recovery

Property Dispositions

Entities Overview

Corporate Formations and Operations

Corporate Nonliquidating and Liquidating Distributions

Forming and Operating Partnerships

Dispositions of Partnership Interests and Partnership Distributions

S: Corporations

Filters