Question 1

Which of the following statements concerning the federal Social Security tax is true?

Accepted Answer

A)  The tax burden increases annually because the rate increases annually. 
B)  The tax burden increases annually because the base increases annually. 
C)  Both the rate and the base increase annually. 
D)  The Social Security tax burden has not increased since 1990.

Question 2

According to the classical concept of efficiency, an efficient tax should be neutral in its effect on free market allocations of economic resources.

Accepted Answer

A) True 
 B)False

Question 3

Which of the following statements concerning tax preferences is true?

Accepted Answer

A)  The annual revenue loss from federal tax preferences is quantified in the Tax Expenditures Budget. 
B)  Tax preferences increase the fairness of the tax law. 
C)  Tax preferences simplify the tax law. 
D)  Tax preferences make the tax law more neutral across taxpayers.

Question 4

A provision in the tax law designed to encourage a specific economic behavior is a tax preference.

Accepted Answer

A) True 
 B)False

Question 5

The city of Berne recently enacted a 10% tax on the price of a subway ticket. Consequently, Mrs. Lane now walks to work instead of taking the subway. Her behavior illustrates the substitution effect of a tax increase.

Accepted Answer

A) True 
 B)False

Exam 2: Policy Standards for a Good Tax

Which of the following statements concerning the federal Social Security tax is true?

According to the classical concept of efficiency, an efficient tax should be neutral in its effect on free market allocations of economic resources.

Which of the following statements concerning tax preferences is true?

A provision in the tax law designed to encourage a specific economic behavior is a tax preference.

The city of Berne recently enacted a 10% tax on the price of a subway ticket. Consequently, Mrs. Lane now walks to work instead of taking the subway. Her behavior illustrates the substitution effect of a tax increase.