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Exam 12: The Design of the Tax System

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Question 201

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

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

E) None of the above
F) C) and D)

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Question 202

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The average tax rate measures the

A) fraction of spending paid in taxes.
B) fraction of income paid in taxes.
C) incremental rate of tax on income.
D) average deadweight loss from all taxes.

E) C) and D)
F) A) and C)

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Question 203

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Table 12-18 United States Income Tax Rates for a Single Individual, 2009 and 2010. -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?

Table 12-25 -Refer to Table 12-25. Do any of the plans achieve vertical equity?

Table 12-23 The dollar amounts in the last three columns are the taxes owed under the three different tax systems. -Refer to Table 12-23. Which of the three tax systems is regressive?

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

Taxes create deadweight losses because they

If a government simplified its tax system the likeliest result would be a decrease in

Suppose the government levies a "fat tax" on naturally-sweetened carbonated beverages to try to reduce the number of overweight children. If the tax revenues pay for the health problems of overweight children, the tax would satisfy the

Table 12-10 -Refer to Table 12-10. If Si has $100,000 in taxable income, his marginal tax rate is

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.

Two families who live in Plains, GA have identical incomes. The Smiths deduct $5,000 from their taxable income for mortgage interest paid during the year. The Jones family lives in an apartment and is not eligible for a mortgage-interest deduction. This situation exemplifies

A budget surplus occurs when government receipts exceed government spending.

Scenario 12-4 A taxpayer faces the following tax rates on her income: 20 percent of the first $40,000 of her income; 30 percent of all her income above $40,000. -Refer to Scenario 12-4. The taxpayer faces

Tax evasion is legal, but tax avoidance is illegal.

In 2009, the top 1 percent of income earners made about

Deadweight losses and administrative burdens are key factors considered when determining the efficiency of the tax system.

If a poor family has three children in public school and a rich family has two children in private school, the ability-to-pay principle would suggest that

Table 12-24 -Refer to Table 12-24. The tax system is an example of a __________ tax.

The U.S. federal government collects about one-half of the taxes in our economy.