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Exam 1: An Introduction to Tax

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Question 21

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The state of Georgia recently increased its tax on a carton of cigarettes by $2.00. What type of tax is this?

A) A sin tax
B) An excise tax
C) It is not a tax; it is a fine
D) Both a sin tax and an excise tax are correct
E) None of these is correct

F) C) and E)
G) A) and C)

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Question 22

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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.

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A sales tax by definition is a proportio...

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Question 23

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Sin taxes are:

Taxes influence many types of business decisions but generally do not influence personal decisions.

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

Al believes that SUVs have negative social and environmental effects because of their increased carbon monoxide emissions. He proposes eliminating sales taxes on smaller automobiles in favor of higher sales taxes levied on SUVs. Al performs some calculations and comes to the conclusion that based on the current number of SUVs owned in the U.S. exactly the same amount of total sales tax will be collected under his reformed system. Which of the following concepts explains why Al's idea may not work?

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? $\begin{array}{lcrc}Taxpayer&Salary&\text{Muni-Bond Interest}& \text{Total Tax}\\\hline\\\text { Mort } & 20,000 & 5,000 & 4,000 \\\text { Lizzy } & 80,000 & 30,000 & ? ? ?\end{array}$

Marc, a single taxpayer, earns $60,000 in taxable income and $5,000 in interest from an investment in city of Birmingham Bonds. Using the U.S. tax rate schedule for year 2014, how much federal tax will he owe?

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

The substitution effect:

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

Raquel recently overheard two journalism students discussing the merits of the federal tax system. One student offered as an example of unfairness the spouse of a well-known politician who paid little income tax as most of the spouse's income was earned in the form of municipal bond interest. What type of taxes is the journalism student considering in his example? What type of taxes is he ignoring? Define each type of tax. What role does each type of tax play in calculating relative tax burdens? What role does each type of tax play in evaluating fairness?

If Susie earns $750,000 in taxable income, how much tax will she pay as a single taxpayer for year 2014?

The effective tax rate expresses the taxpayer's total tax as a percentage of the taxpayer's taxable and nontaxable income.

The concept of tax sufficiency:

To calculate a tax, you need to know: I. the tax base II) the taxing agency III) the tax rate IV) the purpose of the tax

The difficulty in calculating a tax is typically in the determination of:

Margaret recently received a parking ticket. This is a common example of a local tax.

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

Although the primary purpose of a tax system is to raise revenue, Congress uses the federal tax system for other purposes as well. Describe the other ways in which Congress uses the federal tax system. Be specific.