The Design of the Tax System 2951
34. The government taxes corporate income on the basis of
a. profit.
b. the amount the firm receives for the goods or services it sells.
c. the number of employees.
d. All of the above are correct.
35. Corporate profits are
a. included in payroll taxes.
b. exempt from taxes.
c. taxed twice, once as profit and once as dividends.
d. taxed to pay for Medicare.
36. Which of the following are taxed?
a. both corporate profits and dividends shareholders receive
b. corporate profits but not dividends shareholders receive
c. dividends shareholders receive but not corporate profits
d. neither corporate profits nor dividends shareholders receive
2952 The Design of the Tax System
37. Taxes on specific goods such as gasoline and alcoholic beverages are called
a. excise taxes.
b. payroll taxes.
c. sales taxes.
d. social insurance taxes.
38. Which of the following is an example of an excise tax?
a. a tax on the wages that a firm pays its workers
b. a tax on tobacco
c. a tax on corporate profits
d. the portion of federal income taxes earmarked to pay for Social Security and Medicare
The Design of the Tax System 2953
39. If New York City imposed a 50 cent tax on soft-drink beverages that contain sugar or high-
fructose corn syrup, it would
a. be an excise tax.
b. be an income tax.
c. reduce tax revenue.
d. cause the supply of corn to rise.
40. Taxes on specific goods such as cigarettes, gasoline, and alcoholic beverages are called
a. sales taxes.
b. excise taxes.
c. social insurance taxes.
d. consumption taxes.
2954 The Design of the Tax System
41. An estate tax is an example of a(n)
a. individual income tax.
b. social insurance tax.
c. corporate income tax.
d. None of the above is correct.
42. In 2011, federal government receipts were approximately
a. $4,000 per person and federal government spending was approximately $8,000 per person,
resulting in a budget deficit.
b. $8,000 per person and federal government spending was approximately $12,000 per person,
resulting in a budget deficit.
c. $12,000 per person and federal government spending was approximately $8,000 per person,
resulting in a budget surplus.
d. $8,000 per person and federal government spending was approximately $4,000 per person,
resulting in a budget surplus.
The Design of the Tax System 2955
43. In 2011, which category represented the largest category of spending for the U.S. federal
government?
a. health
b. income security
c. national defense
d. net interest
44. The largest budgetary expense for the federal government in 2011 was
a. interest on the national debt.
b. health.
c. highways.
d. income security.
2956 The Design of the Tax System
45. The U.S. federal government spends its revenues in a number of ways. Rank the following
spending categories from largest to smallest.
a. income security, health, national defense, net interest
b. health, national defense, net interest, income security
c. net interest, health, income security, national defense
d. national defense, income security, net interest, health
46. The three largest categories of spending by the Federal government in order from first to third
would be
a. income security, net interest, and national defense
b. national defense, net interest, and income security
c. income security, health, and national defense
d. health, income security, and national defense
The Design of the Tax System 2957
47. In 2011, approximately how much of federal government spending went to income security?
a. 10%
b. 25%
c. 33%
d. 50%
48. In 2011 the largest percentage of federal government spending was on
a. national defense. The largest source of federal revenues was from corporate income taxes.
b. health. The largest source of federal revenues was from individual income taxes.
c. income security. The largest source of federal revenues was from corporate income taxes.
d. income security. The largest source of federal revenues was from individual income taxes.
2958 The Design of the Tax System
49. A transfer payment is a government payment
a. to companies that provide goods or services to government agencies.
b. designed to transfer funds from one government agency to another.
c. which transfers revenue from the federal government to state government.
d. not made in exchange for a good or service.
50.
All of the following are transfer payments except
a. welfare payments.
b. unemployment compensation.
c. personal income taxes.
d. Social Security.
The Design of the Tax System 2959
51. Which of the following is not true about government spending on national defense?
a. It is the third-largest spending category for the U.S. federal government.
b. It includes salaries of military personnel.
c. It fluctuates over time as the political climate changes.
d. It is not financed with tax revenue.
52. The government’s health plan for the elderly is called
a. Medicaid.
b. Medicare.
c. Social Security.
d. food stamps.
2960 The Design of the Tax System
53. Medicare is the
a. government’s health plan for the elderly.
b. government’s health plan for the poor.
c. another name for Social Security.
d. Both a and c are correct.
54. Like spending on Social Security, the share of federal government spending on Medicare has
risen substantially over time. This is most likely a result of
a. a rising population of poor in the economy.
b. a rising population of the elderly in the economy.
c. an immigration policy that promotes an influx of migrant farm workers.
d. All of the above are important factors.
The Design of the Tax System 2961
55. The share of federal government spending on healthcare has risen substantially over time. This is
most likely a result of
a. medical advances that provide new, better, but often more expensive medical treatments.
b. a rising population of the elderly in the economy.
c. health insurance reform that will include government subsidies for health insurance for many
low-to– moderate income families.
d. All of the above are important factors.
56. The federal healthcare spending program that specifically targets the poor is called
a. Medicaid.
b. Medicare.
c. National Institutes of Health.
d. Blue Cross/Blue Shield.
2962 The Design of the Tax System
57. Medicaid is
a. the government’s health plan for the elderly.
b. the government’s health plan for the poor.
c. another name for Social Security.
d. Both a and c are correct.
58. Federal government spending on Social Security, Medicare, and Medicaid as a percentage of
GDP rose from
a. 10 percent in 1950 to more than 50 percent today.
b. 10 percent in 1950 to more than 20 percent today.
c. 1 percent in 1950 to more than 10 percent today.
d. 1 percent in 1950 to more than 20 percent today.
The Design of the Tax System 2963
59. Which of the following programs is not included in the federal income security spending?
a. Social Security
b. welfare
c. education
d. unemployment compensation
60. As government debt increases,
a. Congress will reduce spending by an equal proportion.
b. the government must spend more revenue on interest payments.
c. a trade-off with government deficits is inevitable.
d. tax rates must rise to cover the deficit.
2964 The Design of the Tax System
61. In 2011, the federal government spent 9 percent of the budget on net interest. Which of the
following statements regarding net interest is correct?
a. If the government pays down its debt, the amount of the budget needed for net interest
decreases.
b. If the government accrues more debt, the amount of the budget needed for net interest
increases.
c. In 2011, the federal government spent 325 billion dollars to cover interest payments on its loans.
d. All of the above are correct.
62. The “other” category of federal spending consists of many less expensive functions of
government, including all of the following except
a. housing credit programs.
b. farm support programs.
c. funding for the National Institutes of Health.
d. the federal court system.
The Design of the Tax System 2965
63. A budget deficit
a. occurs when government receipts are less than spending.
b. occurs when government spending is less than receipts.
c. occurs when government receipts are equal to spending.
d. is the accumulation of years of government overspending.
64. The U.S. federal government finances budget deficits by
a. selling stock, much like a corporation.
b. printing additional currency.
c. borrowing from the public.
d. raising property taxes.
2966 The Design of the Tax System
65. Suppose that in 2020 the average citizen‘s federal tax bill is $12,466, and total federal spending is
$10,824 per person. In 2020, the federal government will have
a. a budget surplus.
b. a budget deficit.
c. horizontal equity.
d. vertical equity.
66. Suppose that in 2020 the average citizen‘s federal tax bill is $9,372, and total federal spending is
$10,824 per person. In 2020, the federal government will have
a. a budget surplus.
b. a budget deficit.
c. horizontal equity.
d. vertical equity.
The Design of the Tax System 2967
67. Suppose that in 2020 the average citizen’s federal tax bill is $11,888 per person, and total federal
spending is $13,997 per person. In 2020, the federal government will have
a. a per person budget surplus of $2,109.
b. a per person budget deficit of $2,109.
c. horizontal equity.
d. vertical equity.
68. If government spending exceeds government receipts, the government has a
a. budget surplus. Other things the same, the surplus rises if taxes rise.
b. budget surplus. Other things the same the surplus rises if taxes fall.
c. budget deficit. Other things the same, the deficit rises if taxes rise.
d. budget deficit. Other things the same, the deficit rises if taxes fall.
2968 The Design of the Tax System
69. If a government sells debt to help meet its expenditures, then the government has a
a. budget surplus. Other things the same, the surplus rises if government expenditures rise.
b. budget surplus. Other things the same, the surplus rises if government expenditures fall.
c. budget deficit. Other things the same, the deficit rises if government expenditures rise.
d. budget deficit. Other things the same the deficit rises if government expenditures fall
70. The government finances the budget deficit by
a. borrowing from the public.
b. borrowing solely from the Federal Reserve Bank.
c. printing currency in the amount of the budget deficit.
d. requiring that budget surpluses occur every other year to pay off the deficits.
The Design of the Tax System 2969
71. From 2009 to 2012, the federal budget deficits were the largest budget shortfalls since World War
II. The primary reason for the record-large deficits was
a. the recession experienced during this time.
b. severe budget tightening by members of Congress.
c. the shift in political power from Republicans to Democrats.
d. All of the above are correct.
72. Which of the following contributes to the projected rise in government spending on Social Security
and Medicare as a percentage of GDP?
a. increasing life expectancies
b. increasing healthcare costs
c. increasing fertility rates
d. Both a and b are correct.
2970 The Design of the Tax System
73. From 1950 to today, government spending on Social Security, Medicare, and Medicaid as a
percentage of GDP has
a. decreased from about ten percent to less than one percent.
b. increased from less than one percent to about ten percent.
c. remained constant at less than one percent.
d. remained constant at about ten percent.
74. In 1950 there were approximately 7 working age people for every elderly person; however, in
2050 there will be
a. only 2.5 working people for every elderly person.
b. only 5 working age people for every elderly person.
c. 10 working age people for every elderly person.
d. 14 working age people for every elderly person.