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Exam 1: An Introduction to Tax

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Question 31

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Which of the following is false?

A) A proportional tax rate structure imposes a constant tax rate while a progressive tax rate structure imposes an increasing marginal rate related to the tax base.
B) The average tax rate changes under a proportional tax rate structure, but it is static for a progressive tax rate system.
C) An example of a proportional tax is the tax on gasoline.
D) An example of a progressive tax is the federal tax on gifts.
E) None of the choices are correct.

F) None of the above
G) A) and C)

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Question 32

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Given the following tax structure,what is the minimum tax that would need to be assessed on Dora to make the tax progressive with respect to average tax rates? What is the minimum tax that would need to be assessed on Dora to make the tax progressive with respect to effective tax rates? $\begin{array}{|c|r|r|r}\hline \text { Taxpayer } & \text { Salary } & \text { Muni-Bond Interest } & {\text { Total Tax }} \\\hline \text { Diego } & 30,000 & 10,000 &1,500 \\\hline \text { Dora } & 50,000 & 5,000 &???\\\hline\end{array}$

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Diego's average tax rate is 5%.
A 5% a...

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Question 33

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Implicit taxes are indirect taxes on tax-favored assets.

Dynamic forecasting does not take into consideration taxpayers' responses to a tax change when estimating tax revenues.

The difficulty in calculating a tax is typically in the determination of:

The ultimate economic burden of a tax is best captured by:

Taxes influence many types of business decisions but generally do not influence personal decisions.

Self-employment taxes are charged on self-employment income in addition to any federal income tax.

The main difficulty in calculating an income tax is determining the correct amount of the tax base.

Estimated tax payments are one way the federal income tax system addresses the "certainty" criterion in evaluating tax systems.

Congress recently approved a new,smaller budget for the IRS.What taxation concept evaluates the cost of administering our tax law?

Congress would like to increase tax revenues by 20 percent.Assume that the average taxpayer in the United States earns $80,000 and pays an average tax rate of 17.5%.If the income effect is larger than the substitution effect,what average tax rate will result in a 20 percent increase in tax revenues? This is an example of what type of forecasting?

Although the primary purpose of a tax system is to raise revenue,Congress uses the federal tax system for other purposes as well.Describe the other ways in which Congress uses the federal tax system.Be specific.

Curtis invests $250,000 in a city of Athens bond that pays 7% interest.Alternatively,Curtis could have invested the $250,000 in a bond recently issued by Initech,Inc.that pays 9% interest with similar risk as the city of Athens bond.Assume that Curtis's marginal tax rate is 28%. How much implicit tax would Curtis pay on the city of Athens bond?

Nelson has the choice between investing in a city of Fruithurst bond at 4% or a J.B.Ribs,Inc.bond at 6.5%.Assuming that both bonds have the same non-tax characteristics and that Nelson has a 40% marginal tax rate,in which bond should he invest? What interest rate offered by J.B.Ribs,Inc.would make Nelson indifferent between investing in the two bonds?

Which of the following is true regarding tax-advantaged assets?

In addition to raising revenues,specific U.S.taxes may have other objectives (e.g.,economic or social objectives).

Geronimo files his tax return as a head of household for year 2017.If his taxable income is $72,000,what is his average tax rate? (Use tax rate schedule in the text)

Jackson has the choice to invest in city of Mitchell bonds or Sundial,Inc.corporate bonds that pay 10% interest.Jackson is a single taxpayer who earns $55,000 annually.Assume that the city of Mitchell bonds and the Sundial,Inc.bonds have similar risk. What interest rate would the city of Mitchell have to pay in order to make Jackson indifferent between investing in the city of Mitchell and the Sundial,Inc.bonds for year 2017?

The two components of the tax calculation are the tax rate and the taxpayer's status.