Exam 1: An Introduction to Tax

A common example of an employment related tax is the Medicare tax.

Namratha has the choice between investing in a city of Watkinsville bond at 4.5% or a Moe's, Inc. bond at 7%. Assuming that both bonds have the same non-tax characteristics and that Namratha has a 32% marginal tax rate, in which bond should she invest? What interest rate offered by Moe's, Inc. would make Namratha indifferent between investing in the two bonds?

Which of the following is true?

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

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

Jonah, a single taxpayer, earns $150,000 in taxable income and $10,000 in interest from an investment in city of Denver Bonds. Using the U.S. tax rate schedule for year 2018, how much federal tax will he owe? What is his average tax rate? What is his effective tax rate? What is his current marginal tax rate? If Jonah earned an additional $40,000 of taxable income, what is his marginal tax rate on this income? (Round the tax rates to 2 decimal places, e.g., .12345 as 12.35%) (Use tax rate schedule)

In a proportional (flat) tax rate system, the marginal tax rate will always equal the average tax rate.

A use tax is typically imposed by a state on goods purchased within the state.

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 ultimate economic burden of a tax is best captured by:

Bart is contemplating starting his own business. His new business would operate as a sole proprietorship and would require hiring several employees. Describe the employment-related taxes that Bart should be aware of as he starts his new business as a self-employed business owner.

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 2018, what is his current marginal tax rate? (Use tax rate schedule)

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.

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

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 2018, how much federal tax will he owe? (Use tax rate schedule)

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

A flat tax is an example of a graduated tax system.

Which of the following would not be a failure of the horizontal equity concept?

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.)

Geronimo files his tax return as a head of household for year 2018. If his taxable income is $72,000, what is his average tax rate (rounded)? (Use tax rate schedule)