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56. You are trying to design a tax system that will simultaneously achieve both of the following goals: 1) a person with no
income would pay no taxes, and 2) a high-income person would pay a higher fraction of income in taxes than a low-
income person. Which of the following statements is correct?
a.
A lump-sum tax would achieve the second goal but not the first.
b.
A regressive tax would achieve the second goal but not the first.
c.
A progressive tax could achieve both goals.
d.
A proportional tax could achieve the second goal but not the first.
57. When the marginal tax rate exceeds the average tax rate, the tax is
a.
proportional.
b.
regressive.
c.
non-egalitarian.
d.
progressive.
Table 12-14
Amount of Tax
Percent of Income
$15,000
15%
$30,000
20%
$60,000
30%
$90,000
40%
58. Refer to Table 12-14. The tax system is
a.
progressive.
b.
regressive.
c.
proportional.
d.
lump sum.
Table 12-15
Amount of Tax
Percent of Income
$15,000
20%
$30,000
30%
$60,000
40%
$100,000
50%
59. Refer to Table 12-15. The tax system is
a.
proportional.
b.
regressive.
c.
progressive.
d.
lump sum.
60. Refer to Table 12-15. In this tax system which of the following is possible?
a.
vertical and horizontal equity
b.
vertical but not horizontal equity
c.
horizontal but not vertical equity
d.
neither horizontal nor vertical equity
Table 12-16
Percent of Income
Paid as Tax
10%
20%
30%
40%
61. Refer to Table 12-16. The tax system is
a.
proportional.
b.
regressive.
c.
progressive.
d.
lump sum.
62. Refer to Table 12-16. In this tax system which of the following is possible?
a.
vertical and horizontal equity
b.
vertical but not horizontal equity
c.
horizontal but not vertical equity
d.
neither horizontal nor vertical equity
Table 12-17
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%
63. Refer to Table 12-17. Suppose one goal of the tax system was to achieve vertical equity. While people may disagree
about what is “equitable,” based on the marginal tax rates given for the two years, which of the following statements is
true?
a.
Vertical equity is possible in both years.
b.
Vertical equity is possible in 2009 but not in 2010.
c.
Vertical equity is not possible in 2009 but is possible in 2010.
d.
Vertical equity is not possible in either year.
64. Refer to Table 12-17. Which of the following best describes the tax schedule in 2009?
a.
proportional tax
b.
progressive tax
c.
regressive tax
d.
vertical tax
Table 12-18
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
65. Refer to Table 12-18. What type of tax structure did the United States have in 2009 for single individuals?
a.
a proportional tax structure
b.
a regressive tax structure
c.
a progressive tax structure
d.
a lump-sum tax structure
66. Refer to Table 12-18. What type of tax structure does the United States have in 2010 for single individuals?
a.
a proportional tax structure
b.
a regressive tax structure
c.
a progressive tax structure
d.
a lump-sum tax structure
67. In which of the following tax systems do taxes increase as income increases?
a.
both proportional and progressive
b.
proportional but not progressive
c.
progressive but not proportional
d.
neither proportional nor progressive
68. Suppose that the government collected taxes in the following fashion: people who earn less than $50,000 pay 25
percent in taxes, people who earn between $50,000 and $100,000 pay 35 percent in taxes, people who earn between
$100,000 and $200,000 pay 30 percent in taxes, and people who earn more than $200,000 pay 28 percent in taxes. Which
of the following statements is correct?
a.
The tax system is proportional for income levels less than $50,000 and regressive for income levels above
$50,000.
b.
The tax system is regressive for income levels less than $100,000 and progressive for income levels above
$100,000.
c.
The tax system is progressive for income levels less than $100,000 and regressive for income levels above
$100,000.
d.
The tax system is progressive for income levels less than $50,000 and proportional for income levels above
$100,000.
Table 12-19
Amount of Tax
Percent of Income
$15,000
15%
$30,000
15%
$60,000
15%
$90,000
15%
69. Refer to Table 12-19. The tax system is
a.
progressive.
b.
regressive.
c.
proportional.
d.
lump sum.
70. The most efficient tax possible is a
a.
lump-sum tax.
b.
marginal tax.
c.
proportional tax.
d.
value-added tax.
Table 12-20
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
71. Refer to Table 12-20. Which tax schedules are progressive?
a.
Tax Schedule A only
b.
Tax Schedule A and Tax Schedule B
c.
Tax Schedule A, Tax Schedule B, and Tax Schedule C
d.
All four Tax Schedules are progressive.
72. Refer to Table 12-20. Which tax schedules are regressive?
a.
Tax Schedule A and Tax Schedule B
b.
Tax Schedule B and Tax Schedule C
c.
Tax Schedule C and Tax Schedule D
d.
None of the Tax Schedules are regressive.
73. Refer to Table 12-20. Which tax schedules are proportional?
a.
Tax Schedule B only
b.
Tax Schedule B and Tax Schedule C
c.
Tax Schedule D only
d.
Tax Schedule A and Tax Schedule B
74. Refer to Table 12-20. Which tax schedule could be considered a lump-sum tax?
a.
Tax Schedule B only
b.
Tax Schedule B and Tax Schedule C
c.
Tax Schedule D only
d.
None of the tax schedules could be considered a lump-sum tax.
Table 12-21
The dollar amounts in the last three columns are the taxes owed under the three different tax systems.
Income
Tax System A
Tax System B
Tax System C
$ 50,000
$10,000
$25,000
$10,000
100,000
25,000
30,000
20,000
200,000
80,000
40,000
40,000
75. Refer to Table 12-21. Which of the three tax systems is proportional?
a.
Tax System A
b.
Tax System B
c.
Tax System C
d.
None of the systems are proportional.
76. Refer to Table 12-21. Which of the three tax systems is regressive?
a.
Tax System A
b.
Tax System B
c.
Tax System C
d.
None of the systems are regressive.
77. Refer to Table 12-21. Which of the three tax systems is progressive?
a.
Tax System A
b.
Tax System B
c.
Tax System C
d.
All of the tax systems are progressive.
Table 12-22
TAX A
TAX B
TAX C
TAX D
INCOME
AMOUNT OF TAX
AMOUNT OF TAX
AMOUNT OF TAX
AMOUNT OF TAX
$50,000
$12,500 (25%)
$15,000 (30%)
$10,000 (20%)
$15,000 (30%)
100,000
$25,000 (25%)
$25,000 (25%)
$25,000 (25%)
$15,000 (15%)
200,000
$50,000 (25%)
$40,000 (20%)
$60,000 (30%)
$15,000 (7.5%)
78. Refer to Table 12-22. A regressive tax is illustrated by tax
a.
A only.
b.
B or D.
c.
C only.
d.
A or D.
79. Refer to Table 12-22. A proportional tax is illustrated by tax
a.
A.
b.
B.
c.
C.
d.
D.
80. Refer to Table 12-22. A lump-sum tax is illustrated by tax
a.
A.
b.
B.
c.
C.
d.
D.
81. Refer to Table 12-22. A progressive tax is illustrated by tax
a.
A.
b.
B.
c.
C.
d.
D.
Table 12-23
The dollar amounts in the last three columns are the taxes owed under the three different tax systems.
Income
Tax System A
Tax System B
Tax System C
$100,000
$20,000
$20,000
$50,000
$250,000
$50,000
$75,000
$60,000
$500,000
$100,000
$210,000
$70,000
82. Refer to Table 12-23. Which of the three tax systems is proportional?
a.
Tax System A
b.
Tax System B
c.
Tax System C
d.
None of the systems are proportional.
83. Refer to Table 12-23. Which of the three tax systems is regressive?
a.
Tax System A
b.
Tax System B
c.
Tax System C
d.
None of the systems are regressive.
84. Refer to Table 12-23. Which of the three tax systems is progressive?
a.
Tax System A
b.
Tax System B
c.
Tax System C
d.
None of the systems are progressive.
85. Refer to Table 12-23. Which of the three tax systems exhibits vertical equity?
a.
Tax System A
b.
Tax System B
c.
Tax System C
d.
All of the systems exhibit vertical equity.
86. In 2009, the lowest quintile of income earners paid about
a.
1 percent of income as taxes and paid less than 1 percent of all taxes.
b.
5 percent of income as taxes and paid less than 1 percent of all taxes.
c.
1 percent of income as taxes and paid about 5 percent of all taxes.
d.
5 percent of income as taxes and paid about 5 percent of all taxes.
87. In 2009, the top 1 percent of income earners made about
a.
1 percent of all income and paid about 1 percent of all taxes.
b.
13 percent of all income and paid about 22 percent of all taxes.
c.
22 percent of all income and paid about 13 percent of all taxes.
d.
50 percent of all income and paid about 50 percent of all taxes.
88. In 2009, the top 1 percent of income earners
a.
made about 13 percent of all income.
b.
paid about 22 percent of all taxes.
c.
made over 2.5 times the percentage of all income earned by the lowest quintile.
d.
All of the above are correct.
89. In 2010, the co-chairmen of President Obama’s deficit reduction commission proposed curtailing or eliminating the
mortgage interest deduction that millions of homeowner taxpayers receive every year. Economists who favor the proposal
would argue that
(i)
too much of the economy’s capital stock is tied up in residential housing.
(ii)
too little of the economy’s capital stock is invested in corporate capital.
(iii)
the misallocation of resources results in lower productivity and reduced real wages.
a.
(i) only
b.
(ii) only
c.
(i) and (ii) only
d.
(i), (ii), and (iii)
90. In 2010, the co-chairmen of President Obama’s deficit reduction commission proposed curtailing or eliminating many
tax deductions such as the one for mortgage interest. Economists who favor the proposal argue that it would
(i)
correct a misallocation of resources because too much of the economy’s capital stock is
tied up in residential housing and too little is invested in corporate capital.
(ii)
cut both spending and taxes.
(iii)
encourage private philanthropy.
a.
(i) only
b.
(ii) only
c.
(i) and (ii) only
d.
(i), (ii), and (iii)
91. The flypaper theory of tax incidence
a.
ignores the indirect effects of taxes.
b.
assumes that most taxes should be "stuck on " the rich.
c.
says that once a tax has been imposed, there is little chance of it changing, so in essence people are stuck with
it.
d.
suggests that taxes are like flies because they are everywhere and will never go away.
92. Who pays a corporate income tax?
a.
owners of the corporation
b.
customers of the corporation
c.
workers of the corporation
d.
All of the above are correct.
93. When the government levies a tax on a corporation,
a.
all the burden of the tax ultimately falls on the corporation’s owners.
b.
the corporation is more like a tax collector than a taxpayer.
c.
output must increase to compensate for reduced profits.
d.
less deadweight loss will occur since corporations are entities and not people who respond to incentives.
94. Many economists believe that
a.
the corporate income tax satisfies the goal of horizontal equity.
b.
the corporate income tax does not distort the incentives of customers.
c.
the corporate income tax is more efficient than the personal income tax.
d.
workers and customers bear much of the burden of the corporate income tax.
95. Which of the following is not a way that a corporate tax on the income of U.S. car companies will affect markets?
a.
The price of cars will rise.
b.
The wages of auto workers will fall.
c.
Owners of car companies (stockholders) will receive less profit.
d.
Less deadweight loss will occur since corporations are entities and not people who respond to incentives.
96. The largest source of federal revenue in the United States is:
a.
Social insurance tax
b.
the corporate income tax
c.
the individual income tax
d.
Foreign aid to the U.S.
97. Which of the following is an example of horizontal equity?
a.
A wealthy individual should pay more taxes than a lower-income individual
b.
A wealthy individual should have a greater average tax rate than a middle-income individual
c.
Two persons with identical incomes should pay the same taxes
d.
A local government decides to impose taxes based on the benefits principle
98. The state government requires all persons to pay 5% of their incomes in income tax.This is an example of:
a.
The benefits principle
b.
a proportional tax
c.
a regressive tax
d.
a progressive tax
99. A city finances a performing arts center by adding a $2.75 tax to each ticket sold.This is an example of taxation via the
benefits principle.
a.
True
b.
False
100. Which of the following is an example of a tax based on the benefits principle?
a.
An income tax
b.
A lump-sum tax assessed on household in town to finance the construction of soccer fields
c.
A gasoline tax imposed by a city to be used to upgrade facilities local high school
d.
A toll road
101. Which of the following tax structures is potentially consistent with the concept of vertical equity?
a.
A proportional tax
b.
A progressive tax
c.
A regressive tax
d.
Any of these tax structures are potentially consistent with vertical equity
