Question 1

A lump-sum tax

Accepted Answer

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.E) A) and C)
F) All of the above

Question 2

If revenue from a gasoline tax is used to build and maintain public roads, the gasoline tax may be justified on the basis of

Accepted Answer

A)  the benefits principle.
B)  the ability-to-pay principle.
C)  vertical equity.
D)  horizontal equity.E) B) and D)
F) A) and B)

Question 3

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.

Accepted Answer

A) True 
 B)False

Question 4

If we want to gauge the sacrifice made by a taxpayer, we should use the

Accepted Answer

A)  average tax rate.
B)  marginal tax rate.
C)  lump-sum tax rate.
D)  sales tax rate.E) B) and C)
F) A) and B)

Question 5

In the United States, the marginal tax rate on individual federal income tax

Accepted Answer

A)  decreases as income increases.
B)  increases as income increases.
C)  is constant at all income levels.
D)  applies only to payroll taxes.E) B) and D)
F) A) and D)

Question 6

Table 12-18
United States Income Tax Rates for a Single Individual, 2009 and 2010. 
-Refer to Table 12-18. What type of tax structure does the United States have in 2010 for single individuals?

Accepted Answer

A)  a proportional tax structure
B)  a regressive tax structure
C)  a progressive tax structure
D)  a lump-sum tax structureE) B) and D)
F) B) and C)

Question 7

​Which of the following tax structures is potentially consistent with the concept of vertical equity?

Accepted Answer

A)  ​A proportional tax
B)  ​A progressive tax
C)  ​A regressive tax
D)  ​Any of these tax structures are potentially consistent with vertical equityE) None of the above
F) All of the above

Question 8

Table 12-11 
-Refer to Table 12-11. If Peggy has taxable income of $43,000, her average tax rate is

Accepted Answer

A)  14.7%.
B)  16.3%.
C)  20.8%.
D)  24.0%.E) A) and D)
F) All of the above

Question 9

Table 12-6
The table below shows the marginal tax rates for an unmarried taxpayer for various levels of taxable income. 
-Refer to Table 12-6. For this tax schedule, what is the average tax rate for an individual with $280,000 in taxable income?

Accepted Answer

A)  39.9%
B)  40.2%
C)  42.7%
D)  44.8%E) None of the above
F) B) and C)

Question 10

Suppose the government imposes a tax of 10 percent on the first $40,000 of income and 20 percent on all income above $40,000. What are the tax liability and the marginal tax rate for a person whose income is $50,000?

Accepted Answer

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, respectivelyE) C) and D)
F) B) and D)

Question 11

Table 12-6
The table below shows the marginal tax rates for an unmarried taxpayer for various levels of taxable income. 
-Refer to Table 12-6. For this tax schedule, what is the total tax liability for an individual with $280,000 in taxable income?

Accepted Answer

A)  $105,700
B)  $108,900
C)  $111,600
D)  $117,300E) C) and D)
F) A) and B)

Question 12

Table 12-9
United States Income Tax Rates for a Single Individual, 2012 and 2013. 
-Refer to Table 12-9. Jake is a single person whose taxable income is $20,000 a year. What happened to his average tax rate between 2012 and 2013?

Accepted Answer

A)  It increased.
B)  It decreased.
C)  It did not change.
D)  We do not have enough information to answer this question.E) All of the above
F) A) and B)

Question 13

Deadweight losses are associated with

Accepted Answer

A)  taxes that distort the incentives that people face.
B)  taxes that target expenditures on survivor's benefits for Social Security.
C)  taxes that have no efficiency losses.
D)  lump-sum taxes.E) A) and B)
F) C) and D)

Question 14

​The federal government decides to impose a 15% excise tax on luxury yachts. An economist would suggest that:

Accepted Answer

A)  ​this is an effective way to indirectly tax the wealthy
B)  ​the tax incidence will fall largely on those who buy luxury yachts
C)  ​if prospective buyers decide to purchase other luxury goods instead, the tax incidence will largely fall on those who build and sell luxury yachts
D)  the price of luxury yachts will rise by 15%E) A) and B)
F) B) and D)

Question 15

"A $1,000 tax paid by a poor person may be a larger sacrifice than a $10,000 tax paid by a wealthy person" is an argument in favor of

Accepted Answer

A)  the horizontal equity principle.
B)  the benefits principle.
C)  a regressive tax argument.
D)  the ability-to-pay principle.E) All of the above
F) B) and C)

Question 16

Suppose the government imposes a tax of 20 percent on the first $50,000 of income and 30 percent on all income above $50,000. What is the average tax rate when income is $60,000?

Accepted Answer

A)  21.7 percent
B)  25.0 percent
C)  46.7 percent
D)  50.0 percentE) A) and D)
F) B) and D)

Question 17

Suppose New York City passes a local "big gulp" tax that taxes carbonated beverages larger than 20 ounces if they contain sugar or high fructose corn syrup. If the revenue from the "big gulp" tax is earmarked for diabetes research, the "big gulp" tax may be justified

Accepted Answer

A)  on the basis of the ability-to-pay principle.
B)  because it is an example of a lump-sum tax and thus is the most efficient tax.
C)  on the basis of the benefits principle.
D)  because it is an example of a progressive tax and thus is the most equitable tax.E) None of the above
F) A) and D)

Question 18

The principle that people should pay taxes based on the benefits they receive from government services is called the

Accepted Answer

A)  pay principle.
B)  tax-benefit principle.
C)  government services principle.
D)  benefits principle.E) A) and B)
F) A) and C)

Question 19

Which of the following tax systems could not be structured to satisfy conditions of vertical equity?

Accepted Answer

A)  a proportional tax
B)  a regressive tax
C)  a progressive tax
D)  a lump-sum taxE) A) and B)
F) B) and C)

Question 20

Table 12-10 
-Refer to Table 12-10. If Willie has $170,000 in taxable income, his marginal tax rate is

Accepted Answer

A)  25%.
B)  28%.
C)  33%.
D)  35%.E) B) and C)
F) All of the above

Exam 12: The Design of the Tax System

"A $1,000 tax paid by a poor person may be a larger sacrifice than a $10,000 tax paid by a wealthy person" is an argument in favor of

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A lump-sum tax

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​The federal government decides to impose a 15% excise tax on luxury yachts. An economist would suggest that:

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If we want to gauge the sacrifice made by a taxpayer, we should use the

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Which of the following tax systems could not be structured to satisfy conditions of vertical equity?

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Table 12-9 United States Income Tax Rates for a Single Individual, 2012 and 2013. -Refer to Table 12-9. Jake is a single person whose taxable income is $20,000 a year. What happened to his average tax rate between 2012 and 2013?

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Deadweight losses are associated with

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​Which of the following tax structures is potentially consistent with the concept of vertical equity?

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If revenue from a gasoline tax is used to build and maintain public roads, the gasoline tax may be justified on the basis of

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The principle that people should pay taxes based on the benefits they receive from government services is called the

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In the United States, the marginal tax rate on individual federal income tax

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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.

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Table 12-11 -Refer to Table 12-11. If Peggy has taxable income of $43,000, her average tax rate is

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Suppose the government imposes a tax of 20 percent on the first $50,000 of income and 30 percent on all income above $50,000. What is the average tax rate when income is $60,000?

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Suppose New York City passes a local "big gulp" tax that taxes carbonated beverages larger than 20 ounces if they contain sugar or high fructose corn syrup. If the revenue from the "big gulp" tax is earmarked for diabetes research, the "big gulp" tax may be justified

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Table 12-10 -Refer to Table 12-10. If Willie has $170,000 in taxable income, his marginal tax rate is

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Table 12-6 The table below shows the marginal tax rates for an unmarried taxpayer for various levels of taxable income. -Refer to Table 12-6. For this tax schedule, what is the total tax liability for an individual with $280,000 in taxable income?

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Table 12-6 The table below shows the marginal tax rates for an unmarried taxpayer for various levels of taxable income. -Refer to Table 12-6. For this tax schedule, what is the average tax rate for an individual with $280,000 in taxable income?

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Table 12-18 United States Income Tax Rates for a Single Individual, 2009 and 2010. -Refer to Table 12-18. What type of tax structure does the United States have in 2010 for single individuals?

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Suppose the government imposes a tax of 10 percent on the first $40,000 of income and 20 percent on all income above $40,000. What are the tax liability and the marginal tax rate for a person whose income is $50,000?

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The federal government decides to impose a 15% excise tax on luxury yachts. An economist would suggest that:

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Which of the following tax structures is potentially consistent with the concept of vertical equity?

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