Exam 1: An Introduction to Tax

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

In terms of effective tax rates, the sales tax can be viewed as a regressive tax.

The difficulty in calculating a tax is typically in the determination of:

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

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.

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, how much federal tax will he owe?

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 2016, 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%)

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

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

Excise taxes are typically levied on the value of a good purchased.

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?

The tax base for the federal income tax is taxable income.

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?

Evaluate the U.S. federal tax system on the certainty and economy criteria.

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?

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

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

Taxes influence which of the following decisions?

Employers often withhold federal income taxes directly from worker's paychecks. This is an example of which principle in practice?

Property taxes may be imposed on both real and personal property.