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Exam 12: The Design of the Tax System

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Question 231

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Costas faces a progressive federal income tax structure that has the following marginal tax rates: 0 percent on the first $10,000, 10 percent on the next $10,000, 15 percent on the next $10,000, 25 percent on the next $10,000, and 50 percent on all additional income. In addition, he must pay 5 percent of his income in state income tax and 15.3 percent of his labor income in federal payroll taxes. Costas earns $70,000 per year in salary and another $20,000 per year in non-labor income. What is his average tax rate, and what is his marginal tax rate on his salary?

A) His average tax rate is 17.19 percent, and the marginal tax rate on his salary is 55 percent.
B) His average tax rate is 50.23 percent, and the marginal tax rate on his salary is 70.3 percent.
C) His average tax rate is 53.63 percent, and the marginal tax rate on his salary is 70.3 percent.
D) His average tax rate is 55.79 percent, and the marginal tax rate on his salary is 70.3 percent.

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

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Question 232

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In the 1980s, President Ronald Reagan argued that high tax rates distorted economic incentives to work and save. In the 1990s, President Bill Clinton argued that the rich were not paying their fair share of taxes. Which of the following statements best summarizes the economic theories behind the differing philosophies?

A) President Reagan was concerned about vertical equity, whereas President Clinton was concerned about horizontal equity.
B) President Reagan was concerned about average tax rates, whereas President Clinton was concerned about horizontal equity.
C) President Reagan was concerned about marginal tax rates, whereas President Clinton was concerned about vertical equity.
D) None of the above is correct.

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

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Question 233

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Some colleges charge all students the same fee for a weekly dining services meal plan. Suppose that students differ by how much food they consume each week. For example, members of the women's swimming team consume, on average, twice as much food as the average female college student, and the average male college student consumes 20 percent more food than the average female college student. The dining services fee is most like a(n)

A budget deficit occurs when government receipts fall short of government spending.

Table 12-21 The dollar amounts in the last three columns are the taxes owed under the three different tax systems. -Refer to Table 12-21. Which of the three tax systems is proportional?

​Suppose a state has the following individual income tax structure.The first $20,000 that an individual earns is taxed at 5%. The next $30,000 is taxed at 10%. Any income exceeding $50,000 is taxed at 20%.Based on this tax structure, if a person's income is equal to $60,000, his average tax rate is equal to:

Which of the following tax systems is the most fair?

The most efficient tax possible is a

The administrative burden of any tax system is part of the inefficiency it creates.

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?

A budget surplus occurs when government receipts fall short of government spending.

When the marginal tax rate equals the average tax rate, the tax is

Table 12-9 United States Income Tax Rates for a Single Individual, 2012 and 2013. -Refer to Table 12-9. Harry is a single person whose taxable income is $35,000 a year. What happened to his marginal tax rate between 2012 and 2013?

Leonard, Sheldon, Raj, and Penny each like science fiction moves. The price of a special boxed set of Star Trek DVDs is $50. Leonard values the set of movies at $70, Sheldon at $65, Raj at $60, and Penny at $55. Suppose that if the government taxes DVDs at $10 each, the price rises to $60. A consequence of the tax is that consumer surplus shrinks by

Table 12-9 United States Income Tax Rates for a Single Individual, 2012 and 2013. -Refer to Table 12-9. Ruby Sue is a single person whose taxable income is $100,000 a year. What happened to her marginal tax rate between 2012 and 2013?

A tax that is higher for men than for women violates the criterion of

By law, all states must have a state income tax.

According to the benefits principle, it is fair for people to pay taxes based on their ability to shoulder the tax burden.

Horizontal equity can be difficult to assess because it is difficult to compare the similarity of tax payers.

Horizontal and vertical equity are the two primary measures of efficiency of a tax system.