Exam 1: An Introduction to Tax

A taxpayer's average tax rate is the most appropriate tax rate to use in tax planning.

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 2016, what is his average tax rate (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, how much tax will she pay as a single taxpayer for year 2016?

Milton and Rocco are having a heated debate regarding a national sales tax. Milton argues that a national sales tax is a proportional, vertically equitable tax. Rocco argues that a national sales tax would be a regressive, vertically inequitable tax. Explain both sides of the argument.

In a regressive tax rate system, the marginal tax rate will often be greater than the average tax rate.

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 2016?

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.

Mandy, the mayor of Bogart and a strong advocate of a clean downtown, is proposing an increase in the city sales tax from 7% to 50% on all packs of chewing gum purchased in Bogart. Based on the current gum sales, Mandy estimates that this tax will actually reduce the tax revenue on gum sales. What type of forecasting is Mandy using to derive her tax revenue estimates? What "effect" is her estimate based on? Does this necessarily imply that Mandy will be happy given her desire to have a clean downtown?

Consider the following tax rate structures. Is it horizontally equitable? Why or why not? Is it vertically equitable? Why or why not? Taxpayer Salary Mun-Bond Interest Total Takr Mort 20,000 5,000 4,000 Lizzy 80,000 30,000 ???

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

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

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

Dynamic forecasting does not take into consideration taxpayers' responses to a tax change when estimating tax revenues.

The income and substitution effects are two opposing effects that one could consider in static forecasting.

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

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 considered a tax?

Congress recently approved a new, bigger budget for the IRS. What taxation concept evaluates the cost of administering our tax law?

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

The effective tax rate, in general, provides a better depiction of a taxpayer's tax burden than the average tax rate.