The Design of the Tax System 3071
183. Refer to Table 12-10. If Willie has $170,000 in taxable income, his marginal tax rate is
a. 25%.
b. 28%.
c. 33%.
d. 35%.
184. Refer to Table 12-10. If Si has $100,000 in taxable income, his tax liability will be
a. $838.
b. $3,844.
c. $12,100.
d. $21,709.
3072 The Design of the Tax System
185. Refer to Table 12-10. If Si has $100,000 in taxable income, his average tax rate is
a. 13.7%.
b. 15.2%.
c. 21.7%.
d. 28.3%.
186. Refer to Table 12-10. If Si has $100,000 in taxable income, his marginal tax rate is
a. 25%.
b. 28%.
c. 33%.
d. 35%.
The Design of the Tax System 3073
187. Refer to Table 12-10. If Jace has $33,000 in taxable income, his tax liability will be
a. $4,531.
b. $4,678.
c. $4,950.
d. $8,269.
188. Refer to Table 12-10. If Jace has $33,000 in taxable income, his average tax rate is
a. 13.7%.
b. 14.6%.
c. 15.0%.
d. 15.2%.
3074 The Design of the Tax System
189. Refer to Table 12-10. If Jace has $33,000 in taxable income, his marginal tax rate is
a. 10%.
b. 15%.
c. 25%.
d. 28%.
Table 12–11
The Tax Rate is …
On Taxable Income...
8%
From $0 up to $15,000
16
From $15,000 up to $35,000
24
From $35,000 up to $75,000
34
From $75,000 up to $145,000
36
From $145,000 up to $330,000
38
over $330,000
190. Refer to Table 12-11. If Al has taxable income of $165,000, his tax liability is
a. $23,800.
b. $36,000.
c. $45,000.
d. $47,698.
The Design of the Tax System 3075
191. Refer to Table 12-11. If Al has taxable income of $165,000, his average tax rate is
a. 26.6%.
b. 26.9%.
c. 27.3%.
d. 28.5%.
192. Refer to Table 12-11. If Al has taxable income of $165,000, his marginal tax rate is
a. 16%.
b. 24%.
c. 34%.
d. 36%.
3076 The Design of the Tax System
193. Refer to Table 12-11. If Peggy has taxable income of $43,000, her tax liability is
a. $1,920.
b. $4,400.
c. $6,320.
d. $8,175.
194. Refer to Table 12-11. If Peggy has taxable income of $43,000, her average tax rate is
a. 14.7%.
b. 16.3%.
c. 20.8%.
d. 24.0%.
The Design of the Tax System 3077
195. Refer to Table 12-11. If Peggy has taxable income of $43,000, her marginal tax rate is
a. 8%.
b. 16%.
c. 24%.
d. 34%.
196. Refer to Table 12-11. If Bud has taxable income of $78,000, his tax liability is
a. $7,800.
b. $9,900.
c. $10,200.
d. $15,020.
3078 The Design of the Tax System
197. Refer to Table 12-11. If Bud has taxable income of $78,000, his average tax rate is
a. 18.7%.
b. 19.3%.
c. 20.1%.
d. 34.0%.
198. Refer to Table 12-11. If Bud has taxable income of $78,000, his marginal tax rate is
a. 19.3%.
b. 24.0%.
c. 26.8%.
d. 34.0%.
The Design of the Tax System 3079
199. Under a regressive tax system, the marginal tax rate for high income taxpayers is
a. higher than the marginal tax rate for low income taxpayers.
b. the same as the marginal tax rate for low income taxpayers.
c. lower than the marginal tax rate for low income taxpayers.
d. Any of the above could be true under a regressive tax system.
200. If the government imposes a tax of $3,000 on everyone, the tax would be a(n)
a. income tax.
b. consumption tax.
c. lump-sum tax.
d. marginal tax.
3080 The Design of the Tax System
201. Under a progressive tax system, the marginal tax rate could be equal to the average tax rate only
when a taxpayer
a. has a very high income.
b. has a very low income.
c. is self-employed.
d. invests in a retirement plan.
202. The most efficient tax possible is a
a. marginal income tax.
b. lump–sum tax.
c. consumption tax.
d. corporate profit tax.
The Design of the Tax System 3081
203. A lump–sum tax
a. is most frequently used to tax real property.
b. does not distort incentives.
c. distorts incentives more than any other type of tax.
d. is the most fair tax.
204. The marginal tax rate for a lump-sum tax
a. is always positive.
b. is always negative.
c. is zero.
d. can take on any value but must be greater than the average tax rate.
3082 The Design of the Tax System
205. Which of the following in not a reason that a lump-sum tax imposes a minimal administrative
burden on taxpayers?
a. Everyone can easily compute the amount of tax owed.
b. There is no benefit to hiring an accountant to do your taxes.
c. Everyone owes the same amount of tax, regardless of earnings.
d. The government can easily forecast tax revenues.
206. If the government were to impose a tax that assigned everyone the same tax liability, it would be
a. a lump–sum tax.
b. an equitable tax.
c. supported by the poor.
d. a progressive tax.
The Design of the Tax System 3083
207. One advantage of a lump-sum tax over other taxes is that it
a. is both equitable and efficient.
b. doesn’t cause deadweight loss.
c. would place a larger tax burden on the rich.
d. would raise more revenues.
208. Which of the following is not an advantage of a lump–sum tax in comparison to other types of
taxes?
a. It would not cause deadweight loss.
b. It imposes a minimal administrative burden on taxpayers.
c. It is more equitable.
d. It is more efficient.
3084 The Design of the Tax System
209. Lump-sum taxes are rarely used in the real world because
a. while lump–sum taxes have low administrative burdens, they have high deadweight losses.
b. while lump-sum taxes have low deadweight losses, they have high administrative burdens.
c. lump-sum taxes are often viewed as unfair because they take the same amount of money
from both poor and rich.
d. lump-sum taxes are very inefficient.
210. With a lump-sum tax,the average tax rate for high income taxpayers will be
a. the same as the average tax rate for low income taxpayers.
b. lower than the average tax rate for low income taxpayers.
c. higher than the average tax rate for high income taxpayers.
d. Any of the above could be true under a regressive tax system.
The Design of the Tax System 3085
211. With a lump–sum tax, the
a. marginal tax rate is always less than the average tax rate.
b. average tax rate is always less than the marginal tax rate.
c. marginal tax rate falls as income rises.
d. marginal tax rate rises as income rises.
212. Suppose a country imposes a lump-sum income tax of $5,000 on each individual in the country.
What is the marginal income tax rate for an individual who earns $40,000 during the year?
a. 0%
b. 10%
c. More than 10%
d. The marginal tax rate cannot be determined without knowing the entire tax schedule.
3086 The Design of the Tax System
213. Suppose a country imposes a lump-sum income tax of $5,000 on each individual in the country.
What is the average income tax rate for an individual who earns $40,000 during the year?
a. 0%
b. 10%
c. More than 10%
d. The average tax rate cannot be determined without knowing the entire tax schedule.
214. Suppose a country imposes a lump-sum income tax of $6,000 on each individual in the country.
What is the average income tax rate for an individual who earns $60,000 during the year?
a. 0%
b. 10%
c. More than 10%
d. The average tax rate cannot be determined without knowing the entire tax schedule.
The Design of the Tax System 3087
215. If a government simplified its tax system the likeliest result would be a decrease in
a. consumer surplus.
b. producer surplus.
c. in deadweight loss.
d. tax revenues.
Table 12–12
Taxpayer
Income
Marcia
$40,000
Charles
$30,000
216. Refer to Table 12-12. If the government imposes a $2,000 lump–sum tax, the average tax rate
for Marcia and Charles would be
a. 5 percent and 6.7 percent, respectively.
b. 8 percent and 6 percent, respectively.
c. 12 percent and 9 percent, respectively.
d. 13 percent and 10 percent, respectively.
3088 The Design of the Tax System
217. Refer to Table 12-12. If the government imposes a $3,000 lump-sum tax, the marginal tax rate
for Charles would be
a. 0 percent.
b. 5 percent.
c. 6.7 percent.
d. 10 percent.
Multiple Choice – Section 03: Taxes and Equity
1. The concept that people should pay taxes based on the benefits they receive from government
services is called
a. the ability–to–pay principle.
b. the benefits principle.
c. horizontal equity.
d. vertical equity.
The Design of the Tax System 3089
2. The principle that people should pay taxes based on the benefits they receive from government
services is called the
a. pay principle.
b. tax-benefit principle.
c. government services principle.
d. benefits principle.
3. The benefits principle is used to justify
a. sales taxes.
b. gasoline taxes.
c. “sin” taxes on cigarettes and alcoholic beverages.
d. personal income taxes.
3090 The Design of the Tax System
4. If revenue from a gasoline tax is used to build and maintain public roads, the gasoline tax may be
justified on the basis of
a. the benefits principle.
b. the ability–to–pay principle.
c. vertical equity.
d. horizontal equity.
5. If revenue from a cigarette tax is used to pay for healthcare for people with lung cancer, the
cigarette tax may be justified on the basis of
a. the benefits principle.
b. the ability–to–pay principle.
c. vertical equity.
d. horizontal equity.