True / False
1. The average American pays a higher percent of his income in taxes today than he would have in the late 18th century.
a.
True
b.
False
2. The government raises revenue through taxation to pay for the services it provides.
a.
True
b.
False
3. The U.S. tax burden is high compared to many European countries..
a.
True
b.
False
4. The U.S. federal government collects about one-half of the taxes in our economy.
a.
True
b.
False
5. Revenues from social insurance taxes are earmarked to pay for Social Security and Medicare.
a.
True
b.
False
6. Government spending is projected to rise over the next few decades. Three of the most important reasons are spending
on Social Security, Medicare, and healthcare.
a.
True
b.
False
7. Individual income taxes and social insurance taxes generate the highest tax revenue for the federal government.
a.
True
b.
False
8. A family’s tax liability is the amount of money it owes in taxes.
a.
True
b.
False
9. In the United States, all families pay the same proportion of their income in taxes.
a.
True
b.
False
10. A payroll tax is also referred to as a social insurance tax.
a.
True
b.
False
11. Individual income taxes generate roughly 25% of the tax revenue for the federal government.
a.
True
b.
False
12. Social Security is an income support program, designed primarily to maintain the living standards of the poor.
a.
True
b.
False
13. Corporate income taxes are based on the amount of revenue a corporation earns.
a.
True
b.
False
14. An excise tax is a tax on a specific good, like gasoline.
a.
True
b.
False
15. The largest category of federal spending is national defense.
a.
True
b.
False
16. A budget surplus occurs when government receipts fall short of government spending.
a.
True
b.
False
17. A budget surplus occurs when government receipts exceed government spending.
a.
True
b.
False
18. A budget deficit occurs when government receipts exceed government spending.
a.
True
b.
False
19. A budget deficit occurs when government receipts fall short of government spending.
a.
True
b.
False
20. One reason for the projected increase, over the next several decades, in government spending as a percentage of GDP
is the projected increase in the size of the elderly population.
a.
True
b.
False
21. In 2011, state and local government education spending was more than five times highway spending.
a.
True
b.
False
22. In 2014, the largest source of receipts for state and local governments was individual income taxes.
a.
True
b.
False
23. Income taxes and property taxes generate the highest tax revenue for state and local governments.
a.
True
b.
False
24. In 2014, the largest source of receipts for state and local governments was corporate income taxes.
a.
True
b.
False
25. Sales taxes generate nearly 50% of the tax revenue for state and local governments.
a.
True
b.
False
26. Some states do not have a state income tax.
a.
True
b.
False
27. By law, all states must have a state income tax.
a.
True
b.
False
28. The administrative burden of any tax system is part of the inefficiency it creates.
a.
True
b.
False
29. One characteristic of an efficient tax system is that it minimizes the costs associated with revenue collection.
a.
True
b.
False
30. The administrative burden of complying with tax laws is a cost to the government but not to taxpayers.
a.
True
b.
False
31. The equity of a tax system concerns whether the tax burden is distributed equally among the population.
a.
True
b.
False
32. An efficient tax system is one that imposes small deadweight losses and small administrative burdens.
a.
True
b.
False
33. Deadweight losses arise because a tax causes some individuals to change their behavior.
a.
True
b.
False
34. European countries tend to rely more on consumption taxes than does the United States.
a.
True
b.
False
35. If a tax generates a reduction in surplus that is exactly offset by the tax revenue collected by the government, the tax
does not have a deadweight loss.
a.
True
b.
False
36. Resources devoted to complying with the tax laws are a type of deadweight loss.
a.
True
b.
False
37. An advantage of a consumption tax is that it does not distort the incentive to save.
a.
True
b.
False
38. Tax evasion is legal, but tax avoidance is illegal.
a.
True
b.
False
39. Tax evasion is illegal, but tax avoidance is legal.
a.
True
b.
False
40. In practice, the U.S. income tax system is filled with special provisions that alter a family’s tax based on its specific
circumstances.
a.
True
b.
False
41. If Christopher earns $80,000 in taxable income and pays $20,000 in taxes, his average tax rate is 20 percent.
a.
True
b.
False
42. If James earns $80,000 in taxable income and pays $20,000 in taxes, his average tax rate is 25 percent.
a.
True
b.
False
43. If Mary earns $80,000 in taxable income and pays $40,000 in taxes, her marginal tax rate must be 50 percent.
a.
True
b.
False
44. Many people consider lump-sum taxes to be unfair to low-income taxpayers.
a.
True
b.
False
45. Lump-sum taxes are equitable but not efficient.
a.
True
b.
False
46. A lump-sum tax would take different amounts from the poor and the rich.
a.
True
b.
False
47. A lump-sum tax minimizes deadweight loss.
a.
True
b.
False
48. Deadweight losses and administrative burdens are key factors considered when determining the efficiency of the tax
system.
a.
True
b.
False
49. When the total surplus lost as a result of a tax is less than the amount of tax revenue collected by the government there
is a deadweight loss.
a.
True
b.
False
50. The marginal tax rate serves as a measure of the extent to which the tax system discourages people from working.
a.
True
b.
False
51. Most economists believe that a corporate income tax affects the stockholders of a corporation but not its employees or
customers.
a.
True
b.
False
52. Antipoverty programs funded by taxes on the wealthy are sometimes advocated on the basis of the benefits principle.
a.
True
b.
False
53. According to the benefits principle, it is fair for people to pay taxes based on the benefits they receive from the
government.
a.
True
b.
False
54. According to the benefits principle, it is fair for people to pay taxes based on their ability to shoulder the tax burden.
a.
True
b.
False
55. According to the ability-to-pay principle, it is fair for people to pay taxes based on the amount of government services
that they receive.
a.
True
b.
False
56. According to the ability-to-pay principle, it is fair for people to pay taxes based on their ability to handle the financial
burden.
a.
True
b.
False
57. If all taxpayers pay the same percentage of income in taxes, the tax system is progressive.
a.
True
b.
False
58. If all taxpayers pay the same percentage of income in taxes, the tax system is proportional.
a.
True
b.
False
59. Vertical equity refers to a tax system in which individuals with higher incomes pay more in taxes than individuals with
lower incomes.
a.
True
b.
False
60. Vertical equity refers to a tax system in which individuals with similar incomes pay similar taxes.
a.
True
b.
False
61. Vertical equity is not consistent with a regressive tax structure.
a.
True
b.
False
62. Horizontal equity refers to a tax system in which individuals with higher incomes pay more in taxes than individuals
with lower incomes.
a.
True
b.
False
63. Horizontal equity refers to a tax system in which individuals with similar incomes pay similar taxes.
a.
True
b.
False
64. Horizontal and vertical equity are the two primary measures of efficiency of a tax system.
a.
True
b.
False
65. A tax system exhibits vertical equity when taxpayers with similar abilities to pay contribute the same amount.
a.
True
b.
False
66. To fully understand the progressivity of government policies, one should only look at the proportion of total income
that individuals pay in taxes each year.
a.
True
b.
False
67. If the rich pay more in taxes than the poor, the tax system must be progressive.
a.
True
b.
False
68. Vertical and horizontal equity are widely accepted and applying them to evaluate a tax system is always
straightforward.
a.
True
b.
False
69. A lump sum tax can never have horizontal equity.
a.
True
b.
False
70. Horizontal equity can be difficult to assess because it is difficult to compare the similarity of tax payers.
a.
True
b.
False
71. Economics alone cannot determine the best way to balance the goals of efficiency and equity.
a.
True
b.
False
72. Karole’s income rises from $50,000 to $75,000 and her income tax increases from $8,000 to $9,500.Her average tax
rate is 6%.
a.
True
b.
False
73. 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
74. Sonja paid $15,000 in taxes after having earned $100,000. Amanda paid $22,000 in taxes after having earned an
income of $146,667.This is an example of a proportional tax.
a.
True
b.
False
75. A lump-sum tax does not produce a deadweight loss.
a.
True
b.
False
76. Rob’s income rises from $50,000 to $60,000 and his income tax increases from $6,000 to $7,500.His marginal tax rate
is 12.5%.
a.
True
b.
False