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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 amount of tax would need to be assessed on Carrie to make the tax horizontally equitable? What is the minimum tax that Simon should pay to make the tax structure vertically equitable based on Fantasia's tax rate? This would result in what type of tax rate structure? $\begin{array} { | l | r | r | } \hline { \text { Tuxpuyer } } & \text { Salary } &{ \text { Tatal Tux } } \\\hline \text { Fartasia } & 20,000 & 1,500 \\\hline \text { Zimon } & 30,000 & 2,000 \\\hline \text { Cartie } & 20,006 & ? ? ? \\\hline\end{array}$  

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Horizontal equity means that two taxpayers in similar situations pay the same tax.Thus,to make the tax structure horizontally equitable,Carrie should pay $1,500 in tax. Fantasia's average tax rate is 7.5%. 11ea5ed3_46ea_4596_b73a_cfa63bfaa03d_TB6890_00 To be vertically equitable with respect to tax rates,Simon should pay a tax rate higher than 7.5%.A 7.5% tax rate on Simon's $30,000 taxable income would result in $2,250 of tax (i.e.,7.5% × $30,000 = $2,250).Thus,Simon must pay more than $2,250 tax for the tax structure to be vertically equitable (i.e.,to generate a tax rate more than 7.5%).This would result in a progressive tax rate structure.

Question 2

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The city of Granby,Colorado recently enacted a 1.5% surcharge on vacation cabin rentals that will help pay for the city's new elementary school.This surcharge is an example of ________.

A) A sin tax to discourage undesirable behavior
B) A government fine
C) A sin tax to discourage undesirable behavior and An earmarked tax
D) An earmarked tax
E) None of the choices are correct

F) A) and B)
G) B) and E)

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Question 3

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

A taxpayer's average tax rate is the most appropriate tax rate to use in tax planning.

George recently paid $50 to renew his driver's license.The $50 payment is considered a tax.

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

Mandy,the mayor of Bogart and a strong advocate of a clean downtown,is proposing an increase in the city sales tax from 7% to 50% on all packs of chewing gum purchased in Bogart.Based on the current gum sales,Mandy estimates that this tax will actually reduce the tax revenue on gum sales.What type of forecasting is Mandy using to derive her tax revenue estimates? What "effect" is her estimate based on? Does this necessarily imply that Mandy will be happy given her desire to have a clean downtown?

Heather,a single taxpayer who files as a head of household,earns $60,000 in taxable income and $5,000 in interest from an investment in city of Oxford Bonds.Using the U.S.tax rate schedule for year 2017,how much federal tax will she owe? What is her average tax rate? What is her effective tax rate? What is her current marginal tax rate? If Heather has an additional $20,000 of tax deductions,what is her marginal tax rate on these deductions? (Round the tax rates to 2 decimal places,e.g.,.12345 as 12.35%)(Use tax rate schedule in the text)

Margaret was issued a $150 speeding ticket.This is:

Leonardo earns $80,000 of taxable income.He also has $15,000 in city of Tulsa bonds.His wife,Theresa,earns $50,000 of taxable income. If Leonardo and his wife file married filing jointly in 2017,what would be their average tax rate? (Use tax rate schedule in the text)  

Which of the following federal government actions would make sense if a tax system fails to provide sufficient tax revenue?

Ricky and Lucy are debating several types of taxes.Their debate has focused on the different types of tax rate structures and whether they are "fair." Please define each tax rate structure,provide examples of each structure,and discuss how each structure may be viewed with respect to vertical equity.

Leonardo,who is married but files separately,earns $80,000 of taxable income.He also has $15,000 in city of Tulsa bonds.His wife,Theresa,earns $50,000 of taxable income. If Leonardo earned an additional $30,000 of taxable income this year,what would be the marginal tax rate on the extra income for year 2017? (Use tax rate schedule in the text)

Curtis invests $250,000 in a city of Athens bond that pays 7% interest.Alternatively,Curtis could have invested the $250,000 in a bond recently issued by Initech,Inc.that pays 9% interest with similar risk as the city of Athens bond.Assume that Curtis's marginal tax rate is 28%. How much explicit tax would Curtis incur on interest earned on the Initech,Inc.bond?

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 2017,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 the text)

Which of the following is considered a tax?

Consider the following tax rate structure.Is it horizontally equitable? Why or why not? Is it vertically equitable? Why or why not? $\begin{array}{|c|r|r}\hline{\text { Taxpayer }} &{\text { Salary }} &{\text { Total Tax }} \\\hline \text { Moe } & 20,000 & 1,500 \\\hline \text { Laryy } & 40,000 & 8,500 \\\hline \text { Curly } & 100,000 & 25,500 \\\hline\end{array}$

Excise taxes are typically levied on the value of a good purchased.

Which of the following is not an example of a graduated tax rate structure?

A sales tax is a common example of a progressive tax rate structure.