Chapter 37 – Personal Income Taxes
Chapter 37 Personal Income Taxes
Multiple Choice
1. In 2011, personal income taxes made up _____ of federal government revenues.
A) much more than half
B) much less than half
C) just more than half
D) just less than half
2. Personal income tax withholding is
A) voluntary.
B) involuntary.
C) designed to spread out the impact of taxes throughout the year.
D) Involuntary and designed to spread out the impact of taxes throughout the year.
3. Adjusted Gross Income is
A) total income from all sources.
B) any profit you have from asset sales.
C) income after deductions and exemptions are taken.
D) the amount of income a taxpayer has after taxes are paid.
4. Capital Gains are
A) total net income from all sources.
B) any profit you have from asset sales.
C) total sales prices of from assets.
D) the amount of income a taxpayer has after taxes are paid.
5. Exemptions are reductions of Adjusted Gross Income that depend on
A) family structure (i.e. filing status).
B) family size.
C) how money is spent (e.g. on State and Local taxes or Home Mortgage Interest.)
D) how much money is saved.
Chapter 37 – Personal Income Taxes
6. Itemized Deductions are reductions of Adjusted Gross Income that depend on
A) family structure (i.e. filing status).
B) family size.
C) how money is spent (e.g. on State and Local taxes or Home Mortgage Interest.)
D) how much money is saved.
7. The Standard Deduction depends on
A) family structure (i.e. filing status).
B) family size.
C) how money is spent (e.g. on State and Local taxes or Home Mortgage Interest.)
D) how much money is saved.
8. The amount a family can take in deductions is the larger of
A) their exemptions and the standard deduction.
B) their exemptions and their itemized deductions.
C) their exemptions and their capital gains.
D) their standard deduction and their itemized deductions.
9. If a household has a husband, wife and two kids, has a standard deduction of $10,900, its
itemized deductions are $12,650 and personal exemptions of $14,000 (4*$3,500) then the
first _____ of income is federal income tax free.
A) $20,650
B) $24,900
C) $28,850
D) $33,850
10. If a household has a husband, wife and two kids, has a standard deduction of $10,900, its
itemized deductions are $6,650 and personal exemptions of $14,000 (4*$3,500) then the first
_____ of income is federal income tax free.
A) $16,950
B) $19,850
C) $24,900
D) $30,150
Chapter 37 – Personal Income Taxes
11. If a household has a single woman and three kids, has a standard deduction of $5,450, its
itemized deductions are $10,650 and personal exemptions of $10,500 (3*$3,500) then the
first _____ of income is federal income tax free.
A) $15,800
B) $15,050
C) $21,150
D) $25,700
12. If a household has a single woman and three kids, has a standard deduction of $5,450, its
itemized deductions are $5,650 and personal exemptions of $10,500 (3*$3,500) then the first
_____ of income is federal income tax free.
A) $10,800
B) $16,150
C) $15,050
D) $20,700
13. If a single person has a standard deduction of $5,450, itemized deductions of $5,650 and a
personal exemption of $3,500, then the first _____ of income is federal income tax free.
A) $10,800
B) $8,200
C) $9,150
D) $14,100
14. If a single person has a standard deduction of $5,450, itemized deductions of $3,650 and a
personal exemptions of $3,500, then the first _____ of income is federal income tax free.
A) $8,950
B) $9,800
C) $10,950
D) $12,100
15. Taxable Income is
A) Adjusted Gross Income – Exemptions.
B) Adjusted Gross Income – Exemptions – Deductions.
C) Adjusted Gross Income – Exemptions-Deductions-Credits.
D) Adjusted Gross Income – Exemptions-Deductions-Credits-Taxes Withheld.
Chapter 37 – Personal Income Taxes
16. The filing status of a person who is legally married yet separated as a result of a messy
impending divorce is likely to be
A) married filing jointly.
B) married filing separately.
C) single head of household.
D) single.
17. The filing status of an unmarried single parent living with another person is likely to be
A) married filing jointly.
B) married filing separately.
C) single head of household.
D) single.
18. A tax structure is progressive as long as a person who has more income pays
A) more tax than someone who has less income.
B) a higher rate of tax than someone who has less income.
C) the same tax than someone who has less income.
D) the same rate of tax than someone who has less income.
19. The marginal tax rate is
A) the percentage of all dollars of income paid in tax.
B) the percentage of all taxable dollars of income paid in tax.
C) the percentage of the last dollar of income paid in tax.
D) the percentage of all dollars of income paid in tax and the percentage of the last dollar of
income paid in tax.
20. The Earned Income Tax Credit goes to
A) non-working poor people living off of government assistance.
B) the retired.
C) low-income working people.
D) all taxpayers regardless of income.
Chapter 37 – Personal Income Taxes
21. The Child Credit goes to
A) children directly.
B) all households raising children under 18.
C) only households raising foster children.
D) states to help pay for child-care.
22. The Child Care credit goes
A) directly to child care centers.
B) directly to children under 6.
C) to all households spending money on child and elder care so that they may work.
D) directly to the states.
23. If a person were given the choice of a $500 credit or a $500 deduction
A) he would take the deduction every time.
B) he would take the credit every time.
C) he would take the deduction if he were rich the credit if he were poor.
D) he would take the deduction if he were poor credit if he were rich.
24. If a person were given the choice of a $500 credit or a $2500 deduction
A) he would take the deduction every time.
B) he would take the credit every time.
C) he would take the deduction if he were in the 25% tax bracket, the credit if he were in the
15% tax bracket.
D) he would take the deduction if he were in the 15% tax bracket, the credit if he were in
the 25% tax bracket.
25. If a person were in the 20% tax bracket and given the choice of a $500 credit or a $2500
deduction
A) he would take the deduction every time.
B) he would take the credit every time.
C) he would not care. They would constitute the same tax benefit.
D) he would not qualify for either.
Chapter 37 – Personal Income Taxes
26. If a person were in the 25% tax bracket and given the choice of a $500 credit or a $2500
deduction
A) he would take the deduction every time.
B) he would take the credit every time
C) he would not care. They would constitute the same tax benefit.
D) he would not qualify for either.
27. If a person were in the 15% tax bracket and given the choice of a $500 credit or a $2500
deduction
A) he would take the deduction every time.
B) he would take the credit every time
C) he would not care. They would constitute the same tax benefit.
D) he would not qualify for either.
28. The Alternative Minimum Tax (AMT) was created to
A) make sure poor people paid at least something in taxes.
B) make sure that everyone had an equal chance of facing a tax audit.
C) make sure that everyone paid the same proportion of their income in taxes.
D) make sure that upper income taxpayers could not use deductions to avoid paying income
taxes.
29. Which of the following elements of the Federal Income tax code are not indexed for inflation
A) the brackets.
B) the standard deduction.
C) the personal exemption.
D) the level at which the Alternative Minimum Tax begins.
30. Left unadjusted for inflation, the Alternative Minimum Tax will affect ed____ taxpayers in
2011.
A) 1 million
B) 5 million
C) 10 million
D) 30 million
Chapter 37 – Personal Income Taxes
31. Simply indexing the Alternative Minimum Tax for inflation and making no other adjustments
would
A) help the poor more than the rich.
B) help the rich more than the poor.
C) help all people equally.
D) result in a large surplus.
32. The instructions and rules for the Alternative Minimum Tax are generally
A) far easier to understand than the instruction and rules for the 1040EZ.
B) far easier to understand than the instruction and rules for the 1040.
C) no more or less difficult to understand than the instructions and rules for the 1040.
D) much more complicated than the instructions and rules for the 1040.
33. Generally speaking, people who are close to the Alternative Minimum Tax threshold
A) know it before they sit down to do their taxes.
B) discover it very early in the process of filling out their forms (right after filling in their
names).
C) discover it only after having completed their taxes using the standard forms.
D) are informed about it after they file their 1040.
34. Horizontal equity means that
A) equal people are treated unequally.
B) equal people are treated equally.
C) people across the income scale are treated fairly with regard to ability to pay.
D) people pay a flat rate.
35. Vertical equity means that
A) equal people are treated unequally.
B) equal people are treated equally.
C) people across the income scale are treated fairly with regard to ability to pay.
D) people pay a flat rate.
Chapter 37 – Personal Income Taxes
36. A tax code is described as being “neutral” if it
A) does not favor particular forms of income or expenditures.
B) achieves both vertical equity and horizontal equity.
C) favors socially good consumption over destructive consumption.
D) encourages work and savings rather than consumption.
37. An example of the “equity vs. simplicity” tradeoff is the tax treatment of
A) capital gains.
B) earned income.
C) children.
D) spouses.
38. Economists estimate that an increase in tax rates by 8% will _______ work by _____.
A) decrease; 15%
B) increase; 15%
C) decrease;1%
D) increase; 1%
39. If a tax is placed on one good and not another, the effect that causes you to buy less of the
taxed good because it has become relatively more expensive is called the
A) substitution effect.
B) net effect.
C) income effect.
D) domino effect.
40. If a tax is placed on one good and not another, the effect that causes you to buy more or less
of the taxed good because you have less real buying power is called
A) substitution effect.
B) net effect.
C) income effect.
D) domino effect.
Chapter 37 – Personal Income Taxes
41. The majority of economists would argue that an increase in taxes
A) dramatically increases savings.
B) dramatically decreases savings.
C) has little or no effect on savings.
D) slightly increases savings.
42. Economists generally believe that tax credits and deductions that are used to create an
incentive for individuals to go to college
A) perversely, cause fewer people to go to college.
B) cause dramatically more people to go to college, working precisely as was intended.
C) cause a few more people to go to college, working somewhat as was intended.
D) cause no more people to go to college, amounting to a special break for people who
would have gone to college anyway.
43. The lower half of income earners pay ___ of federal income taxes.
A) 1%
B) 3%
C) 14%
D) 38%
44. The top 10% of income earners pay ____ of federal income taxes.
A) 10%
B) 53%
C) 74%
D) 93%
45. An across the board income tax cut where all income taxes were cut by a constant percentage
would
A) necessarily go to higher income people.
B) alter the after-tax distribution of income in favor of high income people.
C) by definition, keep the after-tax distribution of income relationships constant.
D) necessarily go to higher income people and alter the after-tax distribution of income in
favor of high income people.
Chapter 37 – Personal Income Taxes
46. The tax reform package that eliminated much of the social engineering aspects within the tax
code was passed in
A) 1982 during Reagan’s first term.
B) 1986 during Reagan’s second term.
C) 1993 during Clinton’s first term.
D) 2001 during George W. Bush’s first term.
47. The 2001 and 2003 tax cuts of the George W. Bush administration each had provisions to
A) lower the Earned Income Tax Credit.
B) raise tax rates at the lower end.
C) raise tax rates at the upper end.
D) increase (or speed up the already scheduled increase in) the Child Tax Credit.
48. The 2001 and 2003 tax cuts of the George W. Bush administration each had provisions to
A) lower the Earned Income Tax Credit.
B) raise tax rates at the lower end.
C) raise tax rates at the upper end.
D) lower (or speed up the already scheduled lowering) of tax rates.
49. The 2001 and 2003 tax cuts of the George W. Bush administration each had provisions to
A) lower the Earned Income Tax Credit.
B) raise tax rates at the lower end.
C) raise tax rates at the upper end.
D) phase out the estate tax.
50. In 2011, the U.S. personal income tax system consisted of the following tax rates:
A) 5%, 10%, 15%, 20%, 25% and 30%.
B) 5%, 10%, 15%, 25%, 30% and 35%.
C) 10%, 15%, 25%, 28%, 33% and 35%.
D) 10%, 20%, 30%, 40%, 55% and 69%.
Chapter 37 – Personal Income Taxes
51. The percentage of all income earned by the top 10% of the income distribution is
approximately
A) 10%.
B) 20%.
C) 50%.
D) 60%.
52. The percentage of all income taxes paid by the top 10% of the income distribution is
approximately
A) 20%.
B) 38%.
C) 62%.
D) 74%.
53. The income tax acts as a wedge driven between the value a worker creates and her highest
possible
A) inheritance.
B) capital gain.
C) take-home pay.
D) mortgage loan.
54. Capital gains tax liabilities usually
A) do not include any taxation of actual inflation.
B) are recognized only upon the sale of a capital asset.
C) are recognized before the sale of a capital asset, as the gain actually accrues.
D) must be recognized and paid by the estate of the decedent upon death.
55. If not revised, the Alternative Minimum Tax will eventually affect
A) 70 percent of taxpayers and add 20% to the average person’s tax bill.
B) 70 percent of taxpayers and add 30% to the average person’s tax bill.
C) 90 percent of taxpayers and add 30% to the average person’s tax bill.
D) 100 percent of taxpayers and add 10% to the average person’s tax bill.
Chapter 37 – Personal Income Taxes
56. A complete repeal of the AMT would result initially in a massive
A) increase in the tax liabilities of the taxpayers with the lowest taxable incomes.
B) increase in projected income tax revenues.
C) reduction in the tax liabilities of the taxpayers with the highest taxable incomes.
D) increase in the administrative burden borne by the Internal Revenue Service.
57. Failure to revise the AMT would result eventually in a
A) reduction in the tax liabilities of the taxpayers with the lowest taxable incomes.
B) reduction in projected income tax revenues.
C) reduction in the tax liabilities of the taxpayers with the highest taxable incomes.
D) violation of President Obama’s campaign pledge not to raise taxes on incomes less than
$250,000.
58. Provisions of the 2009 Economic Recovery Act (ie., President Obama’s “Stimulus Package”)
calling for tax credits for first-time home buyers and hybrid cars confirm that the
A) Obama Administration is committed to across-the-board reductions in personal income
tax rates.
B) Obama Administration believes that taxes can alter the spending decisions of taxpayers.
C) Bush Administration’s tax cuts were too costly.
D) credo of Congress is “No Good Deed Will Go Untaxed”.
59. One of the key income tax topics debated during the 2008 Presidential election was whether
the
A) 2003 tax cuts should be allowed to expire in 2011.
B) 1986 tax increases should be finally repealed in 2011.
C) national sales tax should be abolished and replaced with a single income tax rate of 21%.
D) Iraqi oil revenues should be taxed by the U.S. to provide care for disabled Iraqi War
veterans.
Chapter 37 – Personal Income Taxes
60. One of the key income tax topics debated during the 2010 mid-term elections was whether
the
A) 2003 tax cuts should be allowed to expire in 2011.
B) 1986 tax increases should be finally repealed in 2011.
C) national sales tax should be abolished and replaced with a single income tax rate of 21%.
D) Iraqi oil revenues should be taxed by the U.S. to provide care for disabled Iraqi War
veterans.
61. One of the key outcomes of the 2010 mid-term elections was that
A) 2003 tax cuts were continued for everyone through the end of 2012.
B) 1986 tax increases were finally repealed in 2011.
C) A national sales tax was created and replaced the income tax.
D) Iraqi oil revenues were taxed by the U.S. to provide care for disabled Iraqi War veterans.