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Exam 1: An Introduction to Tax

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Question 1

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Given the following tax structure,what is the minimum tax that would need to be assessed on Dora to make the tax progressive with respect to average tax rates? What is the minimum tax that would need to be assessed on Dora to make the tax progressive with respect to effective tax rates?

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Diego's average tax rate is 5 percent. ...

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Question 2

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Given the following tax structure,what is the minimum tax that would need to be assessed on Lizzy to make the tax progressive with respect to average tax rates? What is the minimum tax that would need to be assessed on Lizzy to make the tax progressive with respect to effective tax rates?

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Mort's average tax rate is 20 percent. ...

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While sales taxes are quite common,currently the U.S.federal government does not impose a sales tax.

The income and substitution effects are two opposing effects that one could consider in static forecasting.

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 percent to 30 percent,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.)

Earmarked taxes are:

In addition to raising revenues,specific U.S.taxes may have other objectives (e.g.,economic or social objectives).

Which of the following taxes represents the largest portion of U.S.federal tax revenues?

Curtis invests $250,000 in a city of Athens bond that pays 7 percent interest.Alternatively,Curtis could have invested the $250,000 in a bond recently issued by Initech,Inc.that pays 9 percent interest with similar risk as the city of Athens bond.Assume that Curtis's marginal tax rate is 24 percent. How much explicit tax would Curtis incur on interest earned on the Initech,Inc.bond?

Which of the following is false?

Which of the following principles encourages a vertically equitable tax system?

Jackson has the choice to invest in city of Mitchell bonds or Sundial,Inc.corporate bonds that pay 10 percent interest.Jackson is a single taxpayer who earns $55,000 annually.Assume that the city of Mitchell bonds and the Sundial,Inc.bonds have similar risk. What interest rate would the city of Mitchell have to pay in order to make Jackson indifferent between investing in the city of Mitchell and the Sundial,Inc.bonds for 2019? (Use tax rate schedule.)

Curtis invests $250,000 in a city of Athens bond that pays 7 percent interest.Alternatively,Curtis could have invested the $250,000 in a bond recently issued by Initech,Inc.that pays 9 percent interest with similar risk as the city of Athens bond.Assume that Curtis's marginal tax rate is 24 percent. If Curtis invested in the Initech,Inc.bonds,what would be his after-tax rate of return from this investment?

If Susie earns $750,000 in taxable income and files as head of household for year 2019,what is Susie's average tax rate (rounded) ? (Use tax rate schedule.)

Estimated tax payments are one way the federal income tax system addresses the "certainty" criterion in evaluating tax systems.

Milton and Rocco are having a heated debate regarding a national sales tax.Milton argues that a national sales tax is a proportional,vertically equitable tax.Rocco argues that a national sales tax would be a regressive,vertically inequitable tax.Explain both sides of the argument.

Self-employment taxes are charged on self-employment income in addition to any federal income tax.

Curtis invests $250,000 in a city of Athens bond that pays 7 percent interest.Alternatively,Curtis could have invested the $250,000 in a bond recently issued by Initech,Inc.that pays 9 percent interest with similar risk as the city of Athens bond.Assume that Curtis's marginal tax rate is 24 percent. How much implicit tax would Curtis pay on the city of Athens bond?

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

Ariel invests $50,000 in a city of Las Vegas bond that pays 5 percent interest.Alternatively,Ariel could have invested the $50,000 in a bond recently issued by Jittery Joe's,Inc.that pays 8 percent interest with similar non-tax characteristics as the city of Las Vegas bond (e.g.,similar risk).Assume that Ariel's marginal tax rate is 24 percent.What is her after-tax rate of return for the city of Las Vegas bond? For the Jittery Joe's,Inc.bond? How much explicit tax does Ariel pay on the city of Las Vegas bond? How much implicit tax does she pay on the city of Las Vegas bond? How much explicit tax would she have paid on the Jittery Joe's,Inc.bond? Which bond should she choose?