Chapter Nine
Questions and Exercises
5. Tax Schedule
NTM = 1,400,000
0-1,400,000 = 0
1,400,000 – 7,000,000 = 10%
7,000,000 – 14,000,000 = 560,000 + 20%
14,000,000 – 21,000,000 = 1,960,000 + 30%
21,000,000 – 35,000,000 = 4,060,000 + 40%
35,000,000 = 9,660,000 + 50%
Examination Questions
1. The marginal tax rate equals:
2. A taxpayer may legally avoid paying federal income tax by:
3. A state’s basic individual income tax applies at a flat rate of 3.4 percent. Can the
distribution be progressive, at least in part?
4. Which of the following is not an advantage of income taxation?
USE THE FOLLOWING TAX RATE SCHEDULE TO ANSWER THE NEXT SIX QUESTIONS.
If taxable income is:
of the
But not amount
Over over— Tax is: over
$0 $2,300 –0– $2,300
2,300 3,400 –––11% 2,300
3,400 4,400 $121+12% 3,400
4,400 6,500 241+14% 4,400
6,500 8,500 535+15% 6,500
8,500 10,800 835+16% 8,500
10,800 12,900 1,203+18% 10,800
12,900 15,000 1,581+20% 12,900
15,000 18,200 2,001+23% 15,000
18,200 23,500 2,737+26% 18,200
23,500 28,800 4,115+30% 23,500
28,800 34,100 X + 34% 28,800
34,100 41,500 7,507+38% 34,100
41,500 55,300 10,319+42% 41,500
55,300 81,800 16,115+48% 55,300
81,800 –––––– 28,835+50% 81,800
5. Mr. Smith has adjusted gross income of $26,000 and taxable income of $15,200. What is
Mr. Smith’s marginal tax rate (to the nearest tenth of a percent)?
6. The average tax rate Mr. Smith pays equals (to the nearest tenth of a percent):
7. The average effective tax rate Mr. Smith pays equals (to the nearest tenth of a percent):
8. An additional personal deduction of $200 would reduce Mr. Smith’s tax liability by:
9. A tax credit of $100 would reduce Mr. Smith’s tax liability by:
10. What is the value of X in the tax table?
11. Indexation of individual income taxes is designed to prevent:
12. Tax credits, exemption, and exclusions all can be used by governments to reduce taxes.
Consider a credit of $5,000, an exemption of $5,000, and an exclusion of $5,000—all to
be added to the existing federal individual income tax. Which of the following statements
is correct?
13. Which of the following is true?
USE THIS INFORMATION FOR THE NEXT THREE QUESTIONS.
A federal tax table contains the following excerpt:
If taxable income is:
At least But less than Your tax is
10,000 10,050 1178
10,050 10,100 1190
10,100 10,150 1202
10,150 10,200 1214
14. A person has adjusted gross income of 15,000 and taxable of 10,125. In what marginal
rate bracket is that person?
15. What average tax rate does the person pay?
16. What average effective tax rate does the person pay?
THESE FACTS ARE USED FOR THE NEXT THREE QUESTIONS.
Mr. Harley Davidson earned $107,300 (adjusted gross income) in 1992. After application of the
relevant legal provisions, his taxable income was $86,362. The relevant portion of the tax table
reads:
If taxable income is:
At least But less than Your tax is
86,300 86,350 22,415
86,350 86,400 22,431
86,400 86,450 22,446
17. Approximately what average tax rate did Mr. Davidson pay?
18. Approximately what average effective tax rate did Mr. Davidson pay?
19. Approximately what marginal rate did he pay?
20. Under the current federal individual income tax law, which of the following would be an
exclusion?
21. The federal government may levy an individual income tax without the need to apportion
among states because:
THE NEXT THREE QUESTIONS CORRESPOND TO THE FOLLOWING PASSAGE.
In 1989, I purchased 100 shares of Hyper-Zap Global at $10 per share. I sold the shares in 1991
at a price of $20 per share. Although I did not sell the shares in 1990, I could have sold them for
$18 per share.
22. On an accrual basis, my capital gain for 1991 would have been:
23. On a realization basis, my capital gain for 1991 would have been:
24. The present federal income tax structure would:
USE THE FOLLOWING TAX SCHEDULE TO ANSWER THE NEXT QUESTION.
If taxable income is The tax is
Not over $36,900 15% of taxable income
Over $36,900 and less than $89,150 $5,535 plus 28% of the excess over
$36,900
Over $89,150 and less than $140,000 $20,165 plus 31% of the excess over
$89,150
25. Amanda Huggins has an adjusted gross income of $45,500 and has itemized deductions
and exemptions totaling $6,700. What is Ms. Huggins’ marginal tax rate?
26. Indexation of individual income taxes is designed to:
27. Governments provide tax preferences in several different formats. Suppose a preference
of up to $200 is proposed to assist with purchase of Kindle readers, so that families may
easily have cheap and easy access to electronic books sold by Amazon. The preference
equals the amount paid for the Kindle, up to a maximum of $200. Which of the
following statements about the revenue loss from this provision is accurate?
