Deck 17: Taxation and Resource Allocation

Question 1

Direct taxes are levied on specific economic activities.

Answer 1

False

Question 2

Existing loopholes erode the progressivity of the U.S. tax system.

Answer 2

True

Question 3

A progressive tax is one in which the fraction of income paid in taxes rises as a person's income increases.

Answer 3

True

Question 4

The share of GDP taken by taxes is considerably higher in the United States than in other countries.

Question 5

Direct taxes are levied directly on people or corporations.

Question 6

The ability of homeowners to deduct mortgage interest costs from their taxes makes the income tax more progressive.

Question 7

Indirect taxes are levied on specific economic activities.

Question 8

The federal government receives most of its revenue from three sources: personal income tax, corporate income tax, and payroll tax.

Question 9

For about the past 45 years, federal taxes have remained relatively constant as a percentage of GDP.

Question 10

A regressive tax is one in which the average tax rate falls as income rises.

Question 11

The share of GDP taken by taxes has increased dramatically since the 1960s.

Question 12

The head tax is regressive.

Question 13

The individual income tax, the inheritance tax, and the head tax are all examples of direct taxes.

Question 14

If Bob is taxed for each soda he buys, he faces a direct tax.

Question 15

The marginal tax rate is the change in the average tax rate as income increases.

Question 16

Sales taxes, property taxes, and value-added taxes are examples of indirect taxes.

Question 17

A proportional tax is one in which the fraction of income paid in taxes rises as a person's income increases.

Question 18

For about the past 45 years, state and local taxes have remained relatively constant as a percentage of GDP.

Question 19

When the average tax rate rises as income rises, this is known as progressive taxation.

Question 20

Tax loopholes are equally available to all taxpayers.

Question 21

State and local governments receive money from sales taxes, property taxes, and the federal government.

Question 22

Property taxes are the main source of funding for public schools.

Question 23

The payroll tax is a direct tax.

Question 24

Above a certain income, the marginal social security tax drops to zero.

Question 25

Horizontal equity means that equally situated individuals should be taxed equally.

Question 26

Corporate taxes are a direct tax.

Question 27

Vertical equity in income taxation refers to the notion that persons with different levels of income should be taxed differently.

Question 28

Excise taxes are a form of sales tax.

Question 29

When we say most Americans are in the 15-percent tax bracket, we mean federal taxes are about 15 percent of the income of most Americans.

Question 30

The payroll tax system is a proportional tax for all income earners.

Question 31

Payments to Social Security recipients would decline if the retirement age were lowered.

Question 32

The corporate tax applies to firms' total revenues.

Question 33

The sales tax is generally considered to be a regressive tax.

Question 34

Federal tax loopholes in personal income tax provide benefits only to very high-income people.

Question 35

The concept of equity pertains to the fairness of a tax.

Question 36

Social Security benefits funded by from dividends from the Social Security Trust Fund.

Question 37

States rely primarily on income taxes as a source of revenue.

Question 38

One major problem with Social Security is that it is a "pay as you go" system.

Question 39

The system of grants from one level of government to another is an example of fiscal federalism .

Question 40

The payroll tax is the federal government's biggest source of revenue.

Question 41

Payroll tax is a proportional tax.

Question 42

Loopholes reduce the efficiency of the tax system.

Question 43

The more inelastic the demand for a product, the larger the share of the tax that will be paid by consumers.

Question 44

Tax loopholes reduce the excess tax burden on individuals.

Question 45

A tax that reduces economic efficiency is always bad policy.

Question 46

Over the past decade, increasing real wages have offset slower population growth adding to the Social Security Trust Fund.

Question 47

Vertical equity refers to the notion that equally situated individuals should be taxed equally.

Question 48

Taxation can promote good social policy while minimizing economic inefficiency.

Question 49

Vertical equity refers to the notion that individuals at all levels should be taxed equally.

Question 50

The incidence of a payroll tax is borne by both employers and employees.

Question 51

The total burden of a tax equals tax receipts plus excess burden.

Question 52

No tax can lead the economy to higher levels of efficiency.

Question 53

Employers can shift payroll taxes by substituting capital for labor.

Question 54

The benefits principle states that the users of a service should pay for that service.

Question 55

The ability to shift a tax burden depends on the relative elasticities of demand and supply for the taxed commodity.

Question 56

Consumers can avoid excess tax burden by purchasing more goods that are exempt from sales taxes.

Question 57

The incidence of a tax explains what group pays the burden of a tax.

Question 58

Taxation alters the behavior patterns of individuals.

Question 59

From the passage of the 16th amendment to the U.S. Constitution, income taxes became the primary source of income for the United States.

Question 60

An excess burden is present when taxpayers alter their behavior on account of taxation.

Question 61

Under a regressive tax, the fraction of income paid in taxes

A)rises as income rises.
B)is unchanged as income changes.
C)falls as income rises.
D)is proportional to the change in income.

Question 62

The average tax rate is

A)the ratio of additional taxes to an additional dollar of income.
B)the ratio of taxes to income.
C)the ratio of taxes to GDP.
D)the ratio of income to direct taxes.

Question 63

If Jenny's taxes are $10,000 when she earns $50,000 and $12,000 when she earns $60,000, then

A)Jenny faces a progressive tax.
B)Jenny faces a regressive tax.
C)Jenny faces a proportional tax.
D)Jenny faces a rising marginal tax rate.

Question 64

Federal, state, and local taxes

A)have been falling as a share of GDP since the 1970s.
B)have been increasing as a share of GDP since the 1970s.
C)are about a quarter of GDP.
D)are about one-third of GDP.

Question 65

Since World War II, the share of corporate income tax collections in total federal revenue has been

A)increasing rapidly.
B)declining rapidly.
C)increasing slowly.
D)declining generally.

Question 66

The share of GDP going to federal taxes

A)has been about 16 to 20 percent for the past 40 years.
B)has been about 35 percent for the past 40 years.
C)was about 40 percent until the early 1980s and has dropped greatly since then.
D)has risen steadily in the past 40 years to about 35 percent.

Question 67

A tax system under which an individual pays a higher fraction of his income in taxes at higher levels of income is formally described as

A)digressive.
B)progressive.
C)proportional.
D)regressive.

Question 68

A progressive income tax system can be defined as one in which

A)the government uses taxes paid by the wealthy to fund programs for the poor.
B)an individual pays more dollars in taxes when his income rises.
C)the marginal tax rate rises over time.
D)the average tax rate is higher for individuals with higher incomes.

Question 69

A $10 fee to obtain a driver's license is a

A)regressive tax.
B)degressive tax.
C)proportional tax.
D)progressive tax.

Question 70

Which of the following is an example of a direct tax ?

A)Sales tax
B)Property tax
C)Gasoline tax
D)Income tax

Question 71

If a tax is regressive, the average tax rate

A)remains the same as income rises.
B)rises as income rises.
C)falls as income rises.
D)falls as income falls.

Question 72

One major tax loophole intended to help state & local governments raise funds is

A)fiscal federalism.
B)tax exempt municipal bond interest.
C)tax deductible mortgage interest.
D)tax credits for solar panels.

Question 73

If Hermione pays $10.00 in taxes on $100 of income and $10.25 on $101 of income, which of the following is not true?

A)Her marginal tax rate at $100 is 25 percent.
B)Her average tax rate at $100 is 10 percent.
C)She faces a progressive tax.
D)Her marginal tax rate at $100 is 10.25 percent.

Question 74

Under a proportional tax, the fraction of income paid in taxes

A)rises as income rises.
B)is unchanged as income changes.
C)falls as income rises.
D)is proportional to the change in income.

Question 75

If a tax is proportional, the average tax rate

A)remains the same as income rises.
B)rises as income rises.
C)falls as income rises.
D)falls as income falls.

Question 76

If Gordon's average tax rate is 10 percent when he earns $100 and his average tax rate is 10.25 percent when he earns $101, then

A)his marginal tax rate is 0.25 percent.
B)his marginal tax rate is 35.25 percent.
C)his marginal tax rate is 25.25 percent.
D)his marginal tax rate is 25 percent.

Question 77

In Country X, the government requires employers to collect 9 percent of every employee's compensation as payroll tax. This is an example of

A)progressive tax.
B)regressive tax.
C)digressive tax.
D)proportional tax.

Question 78

If Harun's taxes are $20,000 when he earns $100,000 and $15,000 when he earns $80,000, then

A)Harun faces a progressive tax.
B)Harun faces a regressive tax.
C)Harun faces a proportional tax.
D)Harun faces a falling marginal tax rates.

Question 79

Americans generally pay

A)a lower percentage of their incomes in taxes than citizens of other industrialized countries.
B)a lower percentage of their incomes in taxes than citizens of other industrialized countries, with the exceptions of Sweden and the Netherlands.
C)about the same percentage of their incomes in taxes as citizens of other industrialized countries.
D)a higher percentage of their incomes in taxes than citizens of other industrialized countries.

Question 80

If a tax is progressive, the average tax rate

A)remains the same as income rises.
B)rises as income rises.
C)falls as income rises.
D)falls with passage of time.