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Chapter 12/The Design of the Tax System ❖ 41
89. A person's marginal tax rate equals
a.
her tax obligation divided by her average tax rate.
b.
the increase in taxes she would pay as a percentage of the rise in her income.
c.
her tax obligation divided by her income.
d.
the increase in taxes if her average tax rate were to rise by 1%.
90. In the United States, the marginal tax rate on individual federal income tax
a.
decreases as income increases.
b.
increases as income increases.
c.
is constant at all income levels.
d.
applies only to payroll taxes.
91. Because the marginal tax rate rises as income rises,
a.
higher income families, in general, pay a larger percentage of their income in taxes.
b.
lower income families, in general, pay a larger percentage of their income in taxes.
c.
a disproportionately large share of the tax burden falls upon the poor.
d.
higher income families pay the same percentage of their income in taxes as lower-income families.
Scenario 12-4. A taxpayer faces the following tax rates on her income:
20 percent of the first $40,000 of her income;
30 percent of all her income above $40,000.
92. Refer to Scenario 12-4. The taxpayer faces
a.
a marginal tax rate of 20 percent when her income rises from $40,000 to $40,001.
b.
a marginal tax rate of 20 percent when her income rises from $30,000 to $30,001.
c.
a marginal tax rate of 0 percent when her income rises from $30,000 to $30,001.
d.
a marginal tax rate of 10 percent when her income rises from $40,000 to $40,001.
93. Refer to Scenario 12-4. The taxpayer faces
a.
an average tax rate of 22.5 percent when her income is $30,000.
b.
an average tax rate of 22.0 percent when her income is $50,000.
c.
a marginal tax rate of 10 percent when her income rises from $40,000 to $40,001.
d.
a marginal tax rate of 50 percent when her income rises from $60,000 to $60,001.
94. Refer to Scenario 12-4. At what level of income would the taxpayer’s marginal tax rate be 30 percent and
her average tax rate be 25 percent?
a.
$42,000
b.
$57,000
c.
$60,000
d.
$80,000
42 ❖ Chapter 12 /The Design of the Tax System
95. If your income is $40,000 and your income tax liability is $5,000, your marginal tax rate is
a.
8 percent.
b.
12.5 percent.
c.
20 percent.
d.
unknown. We do not have enough information to answer this question.
96. The deadweight loss of an income tax is determined by the
a.
amount of total tax revenue to the government.
b.
marginal tax rate.
c.
average tax rate.
d.
ability-to-pay principle.
97. Nancy paid a tax of $0.50 on the last dollar she earned in 1999. Nancy's marginal tax rate in 1999 was
a.
more than 50 percent.
b.
exactly 50 percent.
c.
higher than her average tax rate.
d.
lower than her average tax rate.
98. If we want to gauge how much the income tax system distorts incentives, we should use the
a.
average tax rate.
b.
ability-to-pay principle.
c.
total tax revenue collected.
d.
marginal tax rate.
99. Suppose the government imposes a tax of 10 percent on the first $40,000 of income and 20 percent on all in-
come above $40,000. What are the tax liability and the marginal tax rate for a person whose income is
$50,000?
a.
12 percent and 20 percent, respectively
b.
12 percent and $50,000, respectively
c.
$6,000 and 12 percent, respectively
d.
$6,000 and 20 percent, respectively
100. Suppose the government imposes a tax of 10 percent on the first $40,000 of income and 20 percent on all in-
come above $40,000. What are the tax liability and the marginal tax rate for a person whose income is
$30,000?
a.
both are 10 percent
b.
10 percent and $2,000, respectively
c.
$3,000 and 10 percent, respectively
d.
$3,000 and 20 percent, respectively
Chapter 12/The Design of the Tax System ❖ 43
101. Tim earns income of $60,000 per year and pays $21,000 per year in taxes. Tim paid 20 percent in taxes on the
first $30,000 he earned. What was the marginal tax rate on the second $30,000 he earned?
a.
20 percent
b.
30 percent
c.
50 percent
d.
70 percent
102. James earns income of $90,000 per year. His average tax rate is 40%. James paid $5,500 in taxes on the first
$40,000 he earned. What was the marginal tax rate on the rest of his income?
a.
6.1 percent
b.
44 percent
c.
55 percent
d.
61 percent
103. Sue earns income of $80,000 per year. Her average tax rate is 30 percent. Sue paid 20 percent in taxes on the
first $30,000 she earned. What was the marginal tax rate on the rest of her income?
a.
20 percent
b.
24 percent
c.
30 percent
d.
36 percent
104. Sue earns income of $80,000 per year. Her average tax rate is 40 percent. Sue paid $4,500 in taxes on the first
$30,000 she earned. What was the marginal tax rate on the rest of her income?
a.
15 percent
b.
32 percent
c.
40 percent
d.
55 percent
105. Sue earns income of $80,000 per year. Her average tax rate is 50 percent. Sue paid $5,000 in taxes on the first
$30,000 she earned. What was the marginal tax rate on the first $30,000 she earned, and what was the margin-
al tax rate on the remaining $50,000?
a.
6.25 percent and 50.00 percent, respectively
b.
10.00 percent and 70.00 percent, respectively
c.
16.67 percent and 60.00 percent, respectively
d.
16.67 percent and 70.00 percent, respectively
44 ❖ Chapter 12 /The Design of the Tax System
106. A person's tax obligation divided by her income is called her
a.
marginal social tax rate.
b.
marginal private tax rate.
c.
marginal tax rate.
d.
average tax rate.
107. A person's average tax rate equals her
a.
tax obligation divided by her marginal tax rate.
b.
increase in taxes if her income were to rise by $1.
c.
tax obligation divided by her income.
d.
increase in taxes if her marginal tax rate were to rise 1%.
108. Total taxes paid divided by total income is called the
a.
lump-sum tax liability.
b.
marginal tax rate.
c.
average tax rate.
d.
average consumption tax liability.
109. If your income is $40,000 and your income tax liability is $5,000, your
a.
marginal tax rate is 8 percent.
b.
average tax rate is 8 percent.
c.
marginal tax rate is 12.5 percent.
d.
average tax rate is 12.5 percent.
110. If your income is $50,000, your income tax liability is $10,000, and you paid $0.25 in taxes on the last dollar
you earned, your
a.
marginal tax rate is 20 percent.
b.
average tax rate is 5 percent.
c.
marginal tax rate is 25 percent.
d.
average tax rate is 25 percent.
111. Suppose the government taxes 30 percent of the first $70,000 and 50 percent of all income above $70,000.
For a person earning $100,000, the marginal tax rate is
a.
30 percent, and the average tax rate is 50 percent.
b.
30 percent, and the average tax rate is 36 percent.
c.
50 percent, and the average tax rate is 40 percent.
d.
50 percent, and the average tax rate is 36 percent.
Chapter 12/The Design of the Tax System ❖ 45
112. The income tax requires that taxpayers pay 10% on the first $40,000 of income and 20 percent on all income
over $40,000. Karen paid $6,000 in taxes. What were her marginal and average tax rates?
a.
20 percent and 12 percent, respectively
b.
20 percent and 15 percent, respectively
c.
10 percent and 12 percent respectively
d.
10 percent and 15 percent respectively
113. If we want to gauge the sacrifice made by a taxpayer, we should use the
a.
average tax rate.
b.
marginal tax rate.
c.
lump-sum tax rate.
d.
sales tax rate.
114. The average tax rate measures the
a.
fraction of spending paid in taxes.
b.
fraction of income paid in taxes.
c.
incremental rate of tax on income.
d.
average deadweight loss from all taxes.
115. Suppose the government imposes a tax of 10 percent on the first $40,000 of income and 20 percent on all in-
come above $40,000. What is the average tax rate when income is $50,000?
a.
20 percent
b.
15 percent
c.
12 percent
d.
10 percent
116. Suppose the government imposes a tax of 20 percent on the first $50,000 of income and 30 percent on all in-
come above $50,000. What is the average tax rate when income is $60,000?
a.
21.7 percent
b.
25.0 percent
c.
46.7 percent
d.
50.0 percent
117. Suppose the government imposes a tax of 20 percent on the first $50,000 of income and 30 percent on all in-
come above $50,000. What is the marginal tax rate when income is $60,000?
a.
10 percent
b.
20 percent
c.
30 percent
d.
50 percent
46 ❖ Chapter 12 /The Design of the Tax System
118. Bert faces a progressive tax structure that has the following marginal tax rates: 0 percent on the first $10,000,
10 percent on the next $10,000, 15 percent on the next $10,000, 25 percent on the next $10,000, and 50 per-
cent on all additional income. If Bert earns $75,000, what is his average tax rate?
a.
20 percent
b.
25 percent
c.
30 percent
d.
36.67 percent
119. Maurice faces a progressive federal income tax structure that has the following marginal tax rates: 0 percent
on the first $10,000, 10 percent on the next $10,000, 15 percent on the next $10,000, 25 percent on the next
$10,000, and 50 percent on all additional income. In addition, he must pay 5 percent of his income in state in-
come tax and 15.3 percent of his labor income in federal payroll taxes. Maurice earns $60,000 per year in sala-
ry and another $10,000 per year in non-labor income. What is his average tax rate?
a.
17.19 percent
b.
46.69 percent
c.
48.87 percent
d.
56.01 percent
120. Which of the following statements is correct?
a.
The average tax rate gauges the sacrifice made by a taxpayer, whereas the marginal tax rate gauges
the distortion of taxes on consumer decisions.
b.
The marginal tax rate gauges the sacrifice made by a taxpayer, whereas the average tax rate gauges
the distortion of taxes on consumer decisions.
c.
The average tax rate measures how much the tax system discourages people from working.
d.
The marginal tax rate measures total taxes paid divided by total income.
121. Suppose that the government taxes income in the following fashion: 30 percent of the first $20,000, 50 percent
of the next $30,000, and 60 percent of all income over $50,000. Ted earns $40,000, and Robin earns $60,000.
Which of the following statements is correct?
a.
Ted's marginal tax rate is 60 percent, and his average tax rate is 50 percent.
b.
Ted's marginal tax rate is 50 percent, and his average tax rate is 40 percent.
c.
Robin's marginal tax rate is 50 percent, and her average tax rate is 45 percent.
d.
Robin's marginal tax rate is 60 percent, and her average tax rate is 40 percent.
122. Suppose that the government taxes income in the following fashion: 20 percent of the first $50,000, 40 percent
of the next $50,000, and 60 percent of all income over $100,000. Marshall earns $200,000, and Lily earns
$600,000. Which of the following statements is correct?
a.
Marshall's marginal tax rate is higher than Lily's marginal tax rate.
b.
Marshall's average tax rate is higher than his marginal tax rate.
c.
Lily's average tax rate is higher than her marginal tax rate.
d.
Lily's average tax rate is higher than Marshall's average tax rate.
Chapter 12/The Design of the Tax System ❖ 47
123. Pat calculates that for every extra dollar she earns, she owes the government 33 cents. Her total income now is
$35,000, on which she pays taxes of $7,000. Determine her average tax rate and her marginal tax rate.
a.
Her average tax rate is 33% and her marginal tax rate is 20%.
b.
Her average tax rate is 20% and her marginal tax rate is 33%.
c.
Her average tax rate is 20% and her marginal tax rate is 20%.
d.
Her average tax rate is 33% and her marginal tax rate is 33%.
124. Pat calculates that for every extra dollar she earns, she owes the government 40 cents. Her total income now is
$44,000, on which she pays taxes of $11,000. Determine her average tax rate and her marginal tax rate.
a.
Her average tax rate is 40 percent and her marginal tax rate is 25 percent.
b.
Her average tax rate is 40 percent and her marginal tax rate is 40 percent.
c.
Her average tax rate is 25 percent and her marginal tax rate is 25 percent.
d.
Her average tax rate is 25 percent and her marginal tax rate is 40 percent.
125. Under a progressive tax system, the marginal tax rate could be equal to the average tax rate only when a tax-
payer
a.
has a very high income.
b.
has a very low income.
c.
is self-employed.
d.
invests in a retirement plan.
126. Under a regressive tax system,
a.
the marginal tax rate for high income taxpayers is higher than the marginal tax rate for low income
taxpayers.
b.
the marginal tax rate for high income taxpayers is the same as the marginal tax rate for low income
taxpayers.
c.
the marginal tax rate for high income taxpayers is lower than the marginal tax rate for low income
taxpayers.
d.
Any of the above could be true under a regressive tax system.
127. With a lump-sum tax,
a.
the average tax rate for high income taxpayers will be the same as the average tax rate for low
income taxpayers.
b.
the average tax rate for high income taxpayers will be lower than the average tax rate for low
income taxpayers.
c.
the average tax rate for high income taxpayers will be higher than the average tax rate for high
income taxpayers.
d.
Any of the above could be true under a regressive tax system.
128. Costas faces a progressive federal income tax structure that has the following marginal tax rates: 0 percent on
the first $10,000, 10 percent on the next $10,000, 15 percent on the next $10,000, 25 percent on the next
$10,000, and 50 percent on all additional income. In addition, he must pay 5 percent of his income in state in-
48 ❖ Chapter 12 /The Design of the Tax System
come tax and 15.3 percent of his labor income in federal payroll taxes. Costas earns $70,000 per year in salary
and another $20,000 per year in non-labor income. What is his average tax rate, and what is his marginal tax
rate on his salary?
a.
His average tax rate is 17.19 percent, and the marginal tax rate on his salary is 55 percent.
b.
His average tax rate is 50.23 percent, and the marginal tax rate on his salary is 70.3 percent.
c.
His average tax rate is 53.63 percent, and the marginal tax rate on his salary is 70.3 percent.
d.
His average tax rate is 55.79 percent, and the marginal tax rate on his salary is 70.3 percent.
Table 12-5
Income
Tax rate
$0 to $40,000
20%
Over $40,000
50%
129. Refer to Table 12-5. What is the marginal tax rate for a person who makes $35,000?
a.
20%
b.
30%
c.
40%
d.
50%
130. Refer to Table 12-5. What is the marginal tax rate for a person who makes $60,000?
a.
20%
b.
30%
c.
40%
d.
50%
131. Refer to Table 12-5. What is the average tax rate for a person who makes $60,000?
a.
20%
b.
30%
c.
40%
d.
50%
Table 12-6
Income
Tax rate
$0 to $40,000
25%
$40,000 to $100,000
40%
Over $100,000
60%
132. Refer to Table 12-6. What is the marginal tax rate for a person who makes $35,000?
a.
25%
b.
30%
c.
40%
d.
60%
Chapter 12/The Design of the Tax System ❖ 49
133. Refer to Table 12-6. What is the marginal tax rate for a person who makes $50,000?
a.
25%
b.
28%
c.
40%
d.
60%
134. Refer to Table 12-6. What is the marginal tax rate for a person who makes $130,000?
a.
30%
b.
40%
c.
50%
d.
60%
135. Refer to Table 12-6. What is the average tax rate for a person who makes $130,000?
a.
30%
b.
40%
c.
50%
d.
60%
Table 12-7
Income
Tax rate
$0 to $50,000
20%
$50,001 to $100,000
40%
Over $100,000
60%
136. Refer to Table 12-7. What is the marginal tax rate for a person who makes $37,000?
a.
9.25%
b.
20%
c.
25%
d.
40%
137. Refer to Table 12-7. What is the marginal tax rate for a person who makes $60,000?
a.
20%
b.
23%
c.
40%
d.
45%
50 ❖ Chapter 12 /The Design of the Tax System
138. Refer to Table 12-7. What is the marginal tax rate for a person who makes $120,000?
a.
25%
b.
35%
c.
45%
d.
60%
139. Refer to Table 12-7. What is the average tax rate for a person who makes $120,000?
a.
25%
b.
35%
c.
45%
d.
60%
140. High marginal income tax rates
a.
distort incentives to work.
b.
are used to encourage saving behavior.
c.
will invariably lead to lower average tax rates.
d.
are not associated with deadweight losses.
141. If the government imposes a tax of $3,000 on everyone, the tax would be
a.
an income tax.
b.
a consumption tax.
c.
a lump-sum tax.
d.
a marginal tax.
142. The most efficient tax possible is a
a.
marginal income tax.
b.
lump-sum tax.
c.
consumption tax.
d.
corporate profit tax.
143. 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.
Chapter 12/The Design of the Tax System ❖ 51
144. 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.
145. Which of the following in not a reason that a lump-sum tax imposes a minimal administrative burden on tax-
payers?
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.
146. 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.
147. 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.
148. 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.
149. 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.
52 ❖ Chapter 12 /The Design of the Tax System
150. 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.
151. 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.
152. 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.
153. 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.
154. If a government simplified its tax system the likeliest result would be
a.
a decrease in consumer surplus.
b.
a decrease in producer surplus.
c.
a decrease in deadweight loss.
d.
a decrease in tax revenues.
Chapter 12/The Design of the Tax System ❖ 53
Table 12-8
Taxpayer
Income
Marcia
$40,000
Charles
$30,000
155. Refer to Table 12-8. 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.
156. Refer to Table 12-8. 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.
Table 12-9
The table below shows the marginal tax rates for an unmarried taxpayer for various levels of taxable income.
On Taxable Income...
The Tax Rate is...
$0 to $10,000
10%
$10,000 to $30,000
25%
$30,000 to $60,000
35%
$60,000 to $110,000
40%
$110,000 to $180,000
43%
Over $180,000
45%
157. Refer to Table 12-9. For this tax schedule, what is the marginal tax rate for an individual with taxable income
of $49,000?
a.
0%
b.
10%
c.
25%
d.
35%
158. Refer to Table 12-9. For this tax schedule, what is the marginal tax rate for an individual with $212,000 in
taxable income?
a.
0%
b.
1%
c.
2%
d.
45%
54 ❖ Chapter 12 /The Design of the Tax System
159. Refer to Table 12-9. For this tax schedule, what is the average tax rate for an individual with $49,000 in tax-
able income?
a.
25.8%
b.
27.5%.
c.
40.0%
d.
43.7%
160. Refer to Table 12-9. For this tax schedule, what is the average tax rate for an individual with $280,000 in
taxable income?
a.
39.9%
b.
40.2%
c.
42.7%
d.
44.8%
161. Refer to Table 12-9. For this tax schedule, what is the total income tax due for an individual with $49,000 in
taxable income?
a.
$12,650
b.
$14,370
c.
$15,960
d.
$16,220
162. Refer to Table 12-9. For this tax schedule, what is the total tax liability for an individual with $280,000 in
taxable income?
a.
$105,700
b.
$108,900
c.
$111,600
d.
$117,300
Chapter 12/The Design of the Tax System ❖ 55
Table 12-10
The following table shows the marginal tax rates for unmarried individuals for two years.
2009
2010
On Taxable Income...
The Tax Rate is...
On Taxable Income...
The Tax Rate is...
$0 to $15,000
10%
Over $0
20%
$15,000 to $40,000
15%
$40,000 to $75,000
20%
$75,000 to $120,000
25%
Over $120,000
30%
163. Refer to Table 12-10. For an individual who earned $80,000 in both years, which of the following statements
is true regarding the individual’s marginal tax rate?
a.
The marginal tax rate is higher in 2010 than in 2009.
b.
The marginal tax rate is the same in 2010 as it was in 2009.
c.
The marginal tax rate is lower in 2010 than in 2009.
d.
With a proportional tax, as in 2010, it is not possible to determine the individual’s marginal tax rate
so it is not possible to compare the marginal tax rates in the two years.
164. Refer to Table 12-10. For an individual who earned $80,000 of taxable income in 2009, what was the indi-
vidual’s average tax rate in 2009?
a.
12.7%
b.
15.0%
c.
16.1%
d.
16.9%
165. Refer to Table 12-10. For an individual who earned $35,000 in taxable income in both years, which of the
following describes the change in the individual’s marginal tax rate between the two years?
a.
The marginal tax rate increased from 2009 to 2010.
b.
The marginal tax rate decreased from 2009 to 2010.
c.
The marginal tax rate remained constant from 2009 to 2010.
d.
The change in the marginal tax rate cannot be determined for the two tax schedules shown.
166. Refer to Table 12-10. For an individual who earned $35,000 in taxable income in both years, which of the
following describes the change in the individual’s average tax rate between the two years?
a.
The average tax rate increased from 2009 to 2010.
b.
The average tax rate decreased from 2009 to 2010.
c.
The average tax rate remained constant from 2009 to 2010.
d.
The change in the average tax rate cannot be determined for the two tax schedules shown.
56 ❖ Chapter 12 /The Design of the Tax System
Table 12-11
The following table presents the total tax liability for an unmarried taxpayer under four different tax schedules
for the income levels shown.
Amount of Tax Due
Income
Tax Schedule A
Tax Schedule B
Tax Schedule C
Tax Schedule D
$50,000
$10,000
$20,000
$17,500
$15,000
$100,000
$30,000
$30,000
$25,000
$30,000
$200,000
$80,000
$40,000
$30,000
$60,000
167. Refer to Table 12-11. For an individual with $200,000 in taxable income, which tax schedule has the lowest
average marginal tax rate?
a.
Tax Schedule A
b.
Tax Schedule B
c.
Tax Schedule C
d.
Tax Schedule D
168. Refer to Table 12-11. For an individual with $200,000 in taxable income, which tax schedule has the highest
average tax rate?
a.
Tax Schedule A
b.
Tax Schedule B
c.
Tax Schedule C
d.
Tax Schedule D
Table 12-12
United States Income Tax Rates for a Single Individual, 2009 and 2010.
2009 Tax Rates
Income Ranges
2010 Tax Rates
Income Ranges
15%
$0 – $28,000
10%
$0 – $10,000
28%
$28,000 – $70,000
15%
$10,000 – $30,000
31%
$70,000 – $140,000
27%
$30,000 – $60,000
36%
$140,000 – $300,000
30%
$60,000 – $150,000
40%
over $300,000
35%
$150,000 – $320,000
38%
over $320,000
169. Refer to Table 12-12. Kurt is a single person whose taxable income is $35,000 a year. What is his average tax
rate in 2009?
a.
17.6%
b.
20.5%
c.
21.3%
d.
26.2%
Chapter 12/The Design of the Tax System ❖ 57
170. Refer to Table 12-12. Kurt is a single person whose taxable income is $35,000 a year. What is his average tax
rate in 2010?
a.
15.3%
b.
17.6%
c.
21.3%
d.
24.8%
171. Refer to Table 12-12. Kurt is a single person whose taxable income is $35,000 a year. What happened to his
average tax rate between 2009 and 2010?
a.
It increased.
b.
It decreased.
c.
It did not change.
d.
We do not have enough information to answer this question.
172. Refer to Table 12-12. Mia is a single person whose taxable income is $100,000 a year. What is her average
tax rate in 2009?
a.
22.3%
b.
25.3%
c.
27.8%
d.
28.4%
173. Refer to Table 12-12. Mia is a single person whose taxable income is $100,000 a year. What is her average
tax rate in 2010?
a.
24.1%
b.
26.4%
c.
27.8%
d.
30.9%
174. Refer to Table 12-12. Mia is a single person whose taxable income is $100,000 a year. What happened to her
average tax rate between 2009 and 2010?
a.
It increased.
b.
It decreased.
c.
It did not change.
d.
We do not have enough information to answer this question.
58 ❖ Chapter 12 /The Design of the Tax System
175. Refer to Table 12-12. Kurt is a single person whose taxable income is $35,000 a year. What is his marginal
tax rate in 2009?
a.
15%
b.
28%
c.
31%
d.
36%
176. Refer to Table 12-12. Kurt is a single person whose taxable income is $35,000 a year. What is his marginal
tax rate in 2010?
a.
10%
b.
15%
c.
27%
d.
30%
177. Refer to Table 12-12. Kurt is a single person whose taxable income is $35,000 a year. What happened to his
marginal tax rate between 2009 and 2010?
a.
It increased.
b.
It decreased.
c.
It did not change.
d.
We do not have enough information to answer this question.
178. Refer to Table 12-12. Mia is a single person whose taxable income is $100,000 a year. What is her marginal
tax rate in 2009?
a.
15%
b.
28%
c.
31%
d.
36%
179. Refer to Table 12-12. Mia is a single person whose taxable income is $100,000 a year. What is her marginal
tax rate in 2010?
a.
15%
b.
27%
c.
30%
d.
35%
Chapter 12/The Design of the Tax System ❖ 59
180. Refer to Table 12-12. Mia is a single person whose taxable income is $100,000 a year. What happened to her
marginal tax rate between 2009 and 2010?
a.
It increased.
b.
It decreased.
c.
It did not change.
d.
We do not have enough information to answer this question.
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.
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.
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.
60 ❖ Chapter 12 /The Design of the Tax System
5. The theory that the wealthy should contribute more to police protection than the poor because they have more
to protect is based on
a.
the ability-to-pay principle.
b.
a consumption tax plan.
c.
the benefits principle.
d.
property tax assessments.
6. When a tax is justified on the basis that the taxpayers who pay the tax receive specific government services
from payment of the tax, the tax
a.
is considered horizontally equitable.
b.
burden is minimized.
c.
satisfies the benefits principle.
d.
is considered vertically equitable.
7. The benefits principle of taxation can be used to argue that wealthy citizens should pay higher taxes than
poorer ones on the basis that
a.
police services are more frequently used in poor neighborhoods.
b.
the wealthy benefit more from services provided by government than the poor.
c.
the poor are more active in political processes.
d.
the poor receive welfare payments.
8. If a poor family has three children in public school and a rich family has two children in private school, the
benefits principle would suggest that
a.
the poor family should pay more in taxes to pay for public education than the rich family.
b.
the rich family should pay more in taxes to pay for public education than the poor family.
c.
the benefits of private school exceed those of public school.
d.
public schools should be financed by property taxes.
9. If a poor family has three children in public school and a rich family has two children in private school, the
ability-to-pay principle would suggest that
a.
the poor family should pay more in taxes to pay for public education than the rich family.
b.
the rich family should pay more in taxes to pay for public education than the poor family.
c.
the benefits of private school exceed those of public school.
d.
public schools should be financed by property taxes.
