Deck 12: The Design of the Tax System

Question 1

Most people agree that the tax system

A)should be both efficient and equitable.
B)cannot raise enough revenue to cover government expenditures.
C)would raise more revenue if tax rates were lowered.
D)should be rewritten to require everyone to pay the same percentage of income in taxes.

Answer 1

A

Question 2

Who observed that "in this world nothing is certain but death and taxes"?

A)Mark Twain
B)P.T.Barnum
C)Ben Franklin
D)Richard Nixon

Answer 2

C

Question 3

A person's tax liability refers to

A)the percentage of income that a person much pay in taxes.
B)the amount of tax a person owes to the government.
C)the amount of tax the government is required to refund each person.
D)deductions that can be legally subtracted from a person's income each year.

Answer 3

B

Question 4

The U.S.federal government collects what percent of the taxes in the economy?

A)10
B)40
C)50
D)67

Question 5

In 2004,the average American paid approximately how much to the federal government in taxes?

A)$1,900
B)$4,500
C)$6,400
D)$9,000

Question 6

The largest source of revenue for the federal government is the

A)individual income tax.
B)property tax.
C)sales tax.
D)corporate income tax.

Question 7

Which of the following is not a cost of taxes to taxpayers?

A)the tax payment itself
B)deadweight losses
C)administrative burdens
D)goods and services provided by the government

Question 8

In 1789,the average American paid approximately what percent of his income in taxes?

A)5
B)15
C)33
D)50

Question 9

Which of the following is true about the percent of total income the U.S.government takes as taxes?

A)In 1902 the government collected 7 percent of total income; in 2004, it collected 30 percent.
B)In 1902 the government collected 30 percent of total income; in 2004, it collected 7 percent.
C)In 1902 the government collected 7 percent of total income; in 2004, it collected 7 percent.
D)In 1902 the government collected 30 percent of total income; in 2004, it collected 30 percent.

Question 10

The amount of income tax owed by a family is

A)not simply proportional to its total income.
B)unaffected by deductions.
C)total income minus tax credits.
D)a constant fraction of income.

Question 11

Rate these taxes as sources of revenue to the federal government from most to least important.

A)individual income taxes, social insurance taxes, corporate income taxes
B)social insurance taxes, corporate income taxes, individual income taxes
C)corporate income taxes, individual income taxes, social insurance taxes
D)corporate income taxes, social insurance taxes, individual income taxes

Question 12

State and local governments

A)are funded entirely by their own tax base.
B)receive the majority of their tax revenues from corporate income tax.
C)are generally not responsible for collecting sales taxes.
D)receive some of their funds from the federal government.

Question 13

Which of the following statements is correct?

A)Equity is more important than efficiency as a goal of the tax system.
B)Efficiency is more important than equity as a goal of the tax system.
C)Both equity and efficiency are important goals of the tax system.
D)Neither equity nor efficiency is an important goal of the tax system.

Question 14

The largest source of income for the federal government is

A)individual income taxes.
B)corporate taxes.
C)tariffs.
D)"sin" taxes on alcohol and cigarettes.

Question 15

Today the typical American pays what percent of her income in taxes,including property taxes,personal income taxes,corporate income taxes,payroll taxes,and sales taxes?

A)5 percent
B)18 percent
C)33 percent
D)50 percent

Question 16

Which of the following statements is not correct?

A)All states have state income taxes, but the percentages vary widely.
B)Sales taxes and property taxes are important revenue sources for state and local governments.
C)Medicare spending has increased because the percentage of the population that is elderly has increased, as has the cost of health care compared to cost of other goods and services.
D)A budget deficit occurs when government spending exceeds government receipts.

Question 17

Approximately what percent of the federal government's receipts come from individual income taxes?

A)8
B)15
C)43
D)67

Question 18

Which of the following statements about state income taxes is correct?

A)Some states do not tax income at all.
B)If states tax income, they must follow federal guidelines for designing the tax structure.
C)States are not allowed to have a higher marginal tax rate than the federal marginal tax rate.
D)All of the above are correct.

Question 19

The U.S.federal government collects taxes in a number of ways.Rank the following sources of revenue from largest to the smallest.

A)corporate income taxes, social security taxes, personal income taxes, import taxes
B)estate taxes, corporate income taxes, excise taxes, individual income taxes
C)corporate income taxes, payroll taxes, individual income taxes, excise taxes
D)individual income taxes, payroll taxes, corporate income taxes, excise taxes

Question 20

State and local governments

A)use a mix of taxes and fees to generate revenue.
B)are required by federal mandate to levy income taxes.
C)are required to tax property at a standard rate set by the federal government.
D)cannot impose state excise taxes on products that are taxed by the federal government.

Question 21

Taxes on specific goods such as cigarettes,gasoline,and alcoholic beverages are called

A)sales taxes.
B)excise taxes.
C)social insurance taxes.
D)consumption taxes.

Question 22

The payroll tax differs from the individual income tax because the payroll tax is primarily earmarked to pay for

A)employer-provided pensions.
B)Social Security and Medicare.
C)employer-provided health benefits.
D)job loss and training programs.

Question 23

Corporate profits distributed as dividends are

A)tax free.
B)taxed once.
C)double taxed.
D)triple taxed.

Question 24

As a nation gets richer,the government typically takes

A)a constant share of income in taxes.
B)a smaller share of income in taxes.
C)a larger share of income in taxes.
D)There is little evidence of a relationship between income and taxes for most countries.

Question 25

A payroll tax is a tax on

A)the wages that a firm pays its workers.
B)earned and unearned income.
C)specific goods like gasoline and cigarettes.
D)corporate profits.

Question 26

When compared to nonpoor countries,poor countries usually have

A)very high tax burdens.
B)similar tax burdens.
C)relatively low tax burdens.
D)no taxes because of high poverty levels.

Question 27

In the United States,the payroll tax is also called a

A)dividend income tax.
B)social insurance tax.
C)value added tax.
D)capital gains tax.

Question 28

The government taxes corporate income on the basis of

A)profit.
B)the amount the firm receives for the goods or services it sells.
C)the number of employees.
D)All of the above are correct.

Question 29

Over the past 100 years,as the U.S.economy's income has grown,

A)tax rates have decreased, while tax revenues have increased.
B)tax rates have increased, while tax revenues have decreased.
C)U.S.tax rates have surpassed those of all other countries except Mexico and India.
D)the government has grown even more.

Question 30

Which of the following countries has the largest tax burden?

A)Mexico
B)Russia
C)United States
D)France

Question 31

Which of the following statements is correct?

A)National defense and Medicare are the two largest spending categories for the federal government.
B)Welfare programs and highways are the two largest spending categories for state and local governments.
C)Sales taxes and property taxes are the two most important revenue sources for state and local governments.
D)Corporate income taxes are the largest source of revenue for the federal government.

Question 32

In 2004,social insurance taxes represented what percentage of total receipts for the federal government?

A)50
B)39
C)20
D)8

Question 33

When comparing the tax burden of several major countries,the United States's tax burden is

A)the highest.
B)in the top 20 percent.
C)in the middle.
D)near the bottom.

Question 34

Corporate profits are

A)included in payroll taxes.
B)exempt from taxes.
C)taxed twice, once as profit and once as dividends.
D)taxed to pay for Medicare.

Question 35

State and local governments generate revenue from all of the following sources except

A)sales taxes.
B)the federal government.
C)corporate income taxes.
D)customs duties.

Question 36

If Nebraska imposed a tax on milk of 10 cents per gallon,

A)this is an excise tax.
B)this is an income tax.
C)tax revenue will fall.
D)the supply of milk will rise.

Question 37

Which of the following statements is correct?

A)The U.S.federal government collected a higher percentage of income in taxes in the early 1900s than in the early 2000s.
B)The U.S.federal government collects a higher percentage of income in taxes than many European countries, including France and Germany.
C)The U.S.federal government collects a lower percentage of income in taxes than many developing countries, including Mexico and India.
D)The U.S.federal government collects a similar percentage of income in taxes as Brazil and Canada.

Question 38

Which type of tax is used to finance the Social Security program in the United States?

A)consumption tax
B)income tax
C)payroll tax
D)property tax

Question 39

Which of the following statements is not correct?

A)The U.S.tax burden is high compared to many poor countries.
B)As nations get richer, their governments typically collect a smaller share of income in taxes.
C)The U.S.has a higher federal tax burden than Canada or Mexico.
D)The U.S.tax burden is low compared to many European countries.

Question 40

A tax on the wages that a firm pays its workers is called

A)an income tax.
B)an excise tax.
C)a consumption tax.
D)a payroll tax.

Question 41

A tax levied on the total amount spent in retail stores is called

A)a sales tax.
B)an excise tax.
C)a retail tax.
D)an income tax.

Question 42

All of the following are transfer payments except

A)Medicaid.
B)unemployment compensation.
C)personal income taxes.
D)Food Stamps.

Question 43

When a state levies a sales tax,the tax

A)is paid only by the state's residents.
B)occasionally excludes items that are deemed to be necessities.
C)is commonly levied on labor services.
D)applies to wholesale purchases but not retail purchases.

Question 44

A family's income tax liability is

A)a standard percentage of all income earned.
B)determined by wage income rather than dividend and interest income.
C)based on total income.
D)constant from year to year.

Question 45

The federal government finances budget deficits by

A)selling stock, much like a corporation.
B)printing additional currency.
C)borrowing from the public.
D)raising property taxes.

Question 46

Table 12-1

Refer to Table 12-1.If Danielle has $38,000 in taxable income,her tax liability will be

A)$2,237.50.
B)$3,800.
C)$6,237.50.
D)$9,500.

Question 47

A budget deficit

A)occurs when government receipts are less than spending.
B)occurs when government spending is less than receipts.
C)occurs when government receipts are equal to spending.
D)is the accumulation of years of government overspending.

Question 48

State and local governments receive the largest portion of their tax revenues from

A)sales taxes and income taxes.
B)income taxes and property taxes.
C)payroll taxes and income taxes.
D)property taxes and sales taxes.

Question 49

Suppose that in 2009 the average citizen's federal tax bill is $5,678,and total federal spending is $5,467 per person.In 2009,the federal government will have

A)a budget surplus.
B)a budget deficit.
C)horizontal equity.
D)vertical equity.

Question 50

Table 12-1

Refer to Table 12-1.If Morgan has $29,050 in taxable income,her tax liability will be

A)$2,905.
B)$3,285.
C)$4,000.
D)$4,357.50.

Question 51

The tax that generates the most revenue for state and local government is the

A)corporate income tax.
B)individual income tax.
C)property tax.
D)sales tax.

Question 52

When government receipts exceed total government spending during a fiscal year,the difference is

A)a budget surplus.
B)a budget deficit.
C)the national debt.
D)automatically refunded.

Question 53

From 1950 to today,government spending on Social Security,Medicare,and Medicaid as a percentage of GDP has

A)decreased from about eight percent to less than one percent.
B)increased from less than one percent to about eight percent.
C)remained constant at less than one percent.
D)remained constant at about eight percent.

Question 54

Table 12-1

Refer to Table 12-1.If Chris has $100,000 in taxable income,his tax liability will be

A)$8,302.
B)$22,627.
C)$28,000.
D)$29,650.

Question 55

For state and local governments,sales taxes and property taxes make up approximately

A)17 percent of all receipts.
B)20 percent of all receipts.
C)37 percent of all receipts.
D)57 percent of all receipts.

Question 56

Which of the following contributes to the projected rise in government spending on Social Security and Medicare as a percentage of GDP?

A)increasing life expectancies
B)falling fertility rates
C)increasing health care costs
D)All of the above are correct.

Question 57

Most health care economists believe that it will be very difficult to stem the rise in health care costs because

A)government intervention is unpopular with most citizens, especially the elderly.
B)improvements in medical technology have not kept pace with technological improvements in other sectors of the economy.
C)increased competition will increase rather than reduce costs.
D)medical advances are providing better ways to extend and improve human lives but at very expensive costs.

Question 58

A transfer payment is a government payment

A)to companies that provide goods or services to government agencies.
B)designed to transfer funds from one government agency to another.
C)which transfers revenue from the federal government to state government.
D)not made in exchange for a good or service.

Question 59

Suppose that in 2012 the average citizen's federal tax bill is $4,872,and total federal spending is $6,532 per person.In 2012,the federal government will have

A)a budget surplus.
B)a budget deficit.
C)horizontal equity.
D)vertical equity.

Question 60

The government finances the budget deficit by

A)borrowing from the public.
B)borrowing solely from the Federal Reserve Bank.
C)printing currency in the amount of the budget deficit.
D)requiring that budget surpluses occur every other year to pay off the deficits.

Question 61

The U.S.federal government spends its revenues in a number of ways.Rank the following spending categories from largest to smallest.

A)Social Security, national defense, income security, net interest
B)health care, national defense, net interest, income security
C)Social Security, health care, national defense, federal judicial system (including prisons)
D)national defense, social security, net interest, income security

Question 62

As government debt increases,

A)Congress will reduce spending by an equal proportion.
B)the government must spend more revenue on interest payments.
C)a trade-off with government deficits is inevitable.
D)taxes must rise to cover the deficit.

Question 63

State and local government spending on public welfare includes

A)trash removal.
B)transfer payments to the poor.
C)libraries.
D)road repairs.

Question 64

Public schools,which educate most students through high school,are paid for primarily by

A)state governments.
B)local governments.
C)the federal government.
D)taxpayers directly.

Question 65

Which of the following is not true about government spending on national defense?

A)It is the second-largest spending category for the U.S.federal government.
B)It includes salaries of military personnel.
C)It fluctuates over time as the political climate changes.
D)It is not financed with tax revenue.

Question 66

Medicare has been the focus of many proposed reforms over the last several years because

A)health care costs have risen more rapidly than the cost of other goods and services produced in the economy.
B)nationalized health care systems are more efficient than private health care systems.
C)cures for many major diseases are likely to be found in the next few years.
D)government health care research has found that limiting access to doctors will increase the general health of the population.

Question 67

Medicare is the

A)government's health plan for the elderly.
B)government's health plan for the poor.
C)another name for Social Security.
D)Both a and c are correct.

Question 68

Medicaid is

A)the government's health plan for the elderly.
B)the government's health plan for the poor.
C)another name for Social Security.
D)Both a and c are correct.

Question 69

For state and local governments,education accounts for what percent of spending?

A)25 percent
B)34 percent
C)50 percent
D)75 percent

Question 70

Most analysts expect the largest federal spending category to continue to grow in importance for many years into the future.What category of spending is this?

A)national defense
B)Social Security
C)income security
D)farm support programs

Question 71

Like spending on Social Security,the share of federal government spending on Medicare has risen substantially over time.This is most likely a result of

A)a rising population of poor in the economy.
B)the elderly population growing more rapidly than the overall population.
C)an immigration policy that promotes an influx of migrant farm workers.
D)All of the above are important factors.

Question 72

The most common explanation for Social Security payments accounting for a larger share of federal government expenditures is

A)increases in life expectancy.
B)people becoming eligible for Social Security benefits at an earlier age.
C)increases in birth rates among teenagers and the poor.
D)falling payroll tax receipts.

Question 73

The federal healthcare spending program that specifically targets the poor is called

A)Medicaid.
B)Medicare.
C)National Institutes of Health.
D)Blue Cross/Blue Shield.

Question 74

The three largest categories of spending by the Federal government in order from first to third would be

A)Social Security, income security, and national defense.
B)national defense, income security, and Social Security.
C)Social Security, national defense, and income security.
D)income security, Social Security, and national defense.

Question 75

The government's health plan for the elderly is called

A)Medicaid.
B)Medicare.
C)Social Security.
D)TANF.

Question 76

Temporary Assistance for Needy Families (TANF)falls into which spending category?

A)Medicare
B)income security
C)guaranteed social eligibility
D)Social Security

Question 77

As the economy's income has grown,the government has

A)grown at about the same pace.
B)grown at a faster pace.
C)grown at a slower pace.
D)shrunk.

Question 78

The single largest expenditure by state and local governments is on

A)highways.
B)police.
C)public welfare.
D)education.

Question 79

Specific spending programs that are included under the general category of income security include

A)health programs.
B)Medicare.
C)Social Security.
D)Food Stamps.

Question 80

In 2004,total spending per person by the federal government amounted to

A)$4,750.
B)$5,000.
C)$6,400.
D)$7,800.