The Design of the Tax System
Multiple Choice – Section 00: Introduction
1. 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
2. In 1789, the average American paid approximately what percent of income in taxes?
a. 5%
b. 15%
c. 33%
d. 50%
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3. Today the typical American pays approximately what percent of income in taxes, including all
federal, state, and local taxes?
a. 5 percent
b. 25 percent
c. 35 percent
d. 50 percent
4. In 1789 the percentage of the average American’s income that went to pay taxes was about
a. 5%. Today it is about 50%.
b. 5%. Today it is about 25%.
c. 50%. Today it is about 33%.
d. 25%. Today it is about 33%.
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5. From the time of Benjamin Franklin to the present, the percentage of the average American’s
income that goes to pay taxes has
a. decreased from about 20 percent to about 10 percent.
b. remained constant at about 10 percent.
c. has risen from less than 2 percent to about 33.3 percent.
d. has risen from less than 5 percent to about 25 percent.
6. 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.
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7. Citizens expect the government to provide various goods and services making taxes
a. inefficient.
b. equitable.
c. inevitable.
d. intolerable.
8. Taxes can be justified if the government uses the revenue to
(i) provide public goods such as national defense.
(ii) clean up negative externalities such as water pollution.
(iii) regulate a common resource such as fish in a public lake.
(iv) provide goods with positive externalities such as medical research.
a. (ii) only
b. (ii) and (iii) only
c. (i), (ii), and (iii) only
d. (i), (ii), (iii), and (iv)
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Multiple Choice – Section 01: A Financial Overview of the U.S. Government
1. Which of the following is true about the percent of total income all levels of government in the
U.S. take as taxes?
a. In 1902 the government collected about 7 percent of total income. In recent years, it collected
about 30 percent of total income.
b. In 1902 the government collected about 30 percent of total income. In recent years, it collected
about 7 percent of total income.
c. In 1902 the government collected about 7 percent of total income. In recent years, it collected
about 7 percent of total income.
d. In 1902 the government collected about 30 percent of total income. In recent years, it collected
about 30 percent of total income.
2. 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. both tax rates and tax revenues have increased.
d. both tax rates and tax revenues have decreased.
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3. Which of the following countries has the largest tax burden?
a. Mexico
b. Canada
c. United States
d. Denmark
4. Of the following countries, which country’s government collects the largest amount of tax revenue
as a percentage of that country’s total income?
a. Denmark
b. United States
c. Canada
d. Greece
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5. Which of the following countries has lower total government tax revenue as a percentage of GDP
than the United States?
a. Canada
b. Germany
c. Sweden
d. Mexico
6. The U.S. tax burden is
a. about the same as most European countries.
b. higher than most European countries.
c. lower than most European countries.
d. higher than all European countries.
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7. Of the following countries, which country’s government collects the least amount of tax revenue
as a percentage of that country’s total income?
a. Japan
b. United States
c. Mexico
d. Denmark
8. The U.S. federal government collects about
a. one–third of the taxes in our economy.
b. one-half of the taxes in our economy.
c. two-thirds of the taxes in our economy.
d. three-fourths of the taxes in our economy.
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9. 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
Japan.
10. In 2011, the U.S. federal government collected approximately what percentage of the taxes in the
economy?
a. 10%
b. 40%
c. 50%
d. 67%
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11. In 2011, the average American paid approximately how much to the federal government in taxes?
a. $2,000
b. $2,500
c. $8,000
d. $10,500
12. In 2011, the U.S. federal government collected approximately how much in total tax receipts?
a. $800 million
b. $2.5 billion
c. $5.2 billion
d. $8.7 billion
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13. In 2011, which category represented the largest source of receipts for the U.S. federal
government?
a. Medicare
b. Social Security
c. corporate income taxes
d. individual income taxes
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.
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15. 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.
16. In 2011, approximately what percentage of the U.S. federal government‘s receipts came from
individual income taxes?
a. 9%
b. 15%
c. 43%
d. 67%
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17. The U.S. federal government collects taxes in a number of ways. Rank the following sources of
revenue from the largest to the smallest.
a. corporate income taxes, individual income taxes, social insurance taxes
b. social insurance taxes, individual income taxes, corporate income taxes
c. individual income taxes, social insurance taxes, corporate income taxes
d. individual income taxes, corporate income taxes, social insurance taxes
18. A person‘s tax liability refers to
a. the percentage of income that a person must 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 to each person.
d. deductions that can be legally subtracted from a person’s income each year.
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19. 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.
20. 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.
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21. The federal taxes owed by a taxpayer depend
a. only upon the marginal tax rate on the taxpayer’s first $25,000 of income.
b. only upon the marginal tax rate on the taxpayer’s last $10,000 of income.
c. upon all the marginal tax rates up to the taxpayer’s overall level of income.
d. upon all the marginal tax rates, including those for income levels that exceed the taxpayer’s
overall level of
income.
22.
The marginal tax rate for an unmarried taxpayer in the highest taxable income category for 2013
is approximately
a. 80 percent.
b. 50 percent.
c. 40 percent.
d. 20 percent.
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23. The two taxes that together provide the U.S. federal government with almost 80 percent of its
revenue are
a. individual income taxes and property taxes.
b. individual income taxes and corporate income taxes.
c. individual income taxes and payroll taxes.
d. sales taxes and payroll taxes.
24. Which of the following is an example of a payroll tax?
a. a tax on the wages that a firm pays its workers
b. a “sin” tax on distilled alcohol
c. a tax on corporate profits
d. the portion of federal income taxes earmarked to pay for national defense
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25. 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.
26. 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
27. The revenue that the federal government collects from payroll taxes is earmarked to pay for
a. national defense and income security (welfare) programs
b. national defense and Medicare
c. Social Security and public schools
d. Social Security and Medicare
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28. In 2011, social insurance taxes represented approximately what percentage of total receipts for
the federal government?
a. 5%
b. 12%
c. 36%
d. 44%
29. 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.
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30. 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.
31. 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.
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32. In 2011, what percentage of federal government receipts came from corporate income taxes?
a. 7%
b. 12%
c. 25%
d. 43%
33. Corporate profits distributed as dividends are
a. tax free.
b. taxed once.
c. taxed twice.
d. taxed three times.