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Exam 1: An Introduction to Tax

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Question 61

True/False

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

A) True
B) False

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Question 62

Multiple Choice

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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) A) and B)
G) None of the above

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Question 63

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Which of the following is considered a tax?

Given the following tax structure, what amount of tax would need to be assessed on Carrie to make the tax horizontally equitable? What is the minimum tax that Simon should pay to make the tax structure vertically equitable based on Fantasia's tax rate? This would result in what type of tax rate structure?

Leonardo, who is married but files separately, earns $63,000 of taxable income. He also has $16,400 in city of Tulsa bonds. His wife, Theresa, earns $51,400 of taxable income. If Leonardo and his wife are married filing jointly in 2020, what is Leonardo and Theresa's effective tax rate for 2020? (Use tax rate schedule.) (Round your final answer to two decimal places.)

The effective tax rate expresses the taxpayer's total tax as a percentage of the taxpayer's taxable and nontaxable income.

Which of the following principles encourages a vertically equitable tax system?

Curtis invests $300,000 in a city of Athens bond that pays 5.00 percent interest. Alternatively, Curtis could have invested the $300,000 in a bond recently issued by Initech, Incorporated that pays 7.00 percent interest with similar risk as the city of Athens bond. Assume that Curtis's marginal tax rate is 24 percent. How much explicit tax would Curtis incur on interest earned on the Initech, Incorporated bond?

Leonardo, who is married but files separately, earns $80,000 of taxable income. He also has $15,000 in city of Tulsa bonds. His wife, Theresa, earns $50,000 of taxable income. How much money would Leonardo and Theresa save if they file jointly instead of separately for 2020? (Use tax rate schedule.)

Given the following tax structure, what is the minimum tax that would need to be assessed on Lizzy to make the tax progressive with respect to average tax rates? What is the minimum tax that would need to be assessed on Lizzy to make the tax progressive with respect to effective tax rates?

Leonardo, who is married but files separately, earns $63,000 of taxable income. He also has $16,400 in city of Tulsa bonds. His wife, Theresa, earns $51,400 of taxable income. If Leonardo instead had $31,400 of additional tax deductions for 2020, his marginal tax rate on the deductions would be: (Use tax rate schedule.) (Round your final answer to two decimal places.)

Raquel recently overheard two journalism students discussing the merits of the federal tax system. One student offered as an example of unfairness a well-known politician's spouse, who paid little income tax, as most of the spouse's income was earned in the form of municipal bond interest. What type of taxes is the journalism student considering in his example? What type of taxes is he ignoring? Define each type of tax. What role does each type of tax play in calculating relative tax burdens? What role does each type of tax play in evaluating fairness?

Tax policy rarely plays an important part in presidential campaigns.

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

Leonardo, who is married but files separately, earns $80,000 of taxable income. He also has $15,000 in city of Tulsa bonds. His wife, Theresa, earns $50,000 of taxable income. If Leonardo and his wife are married filing jointly in 2020, what is Leonardo and Theresa's effective tax rate for 2020? (Use tax rate schedule.) (Round your final answer to two decimal places.)

Taxes influence business decisions such as where a business should locate or how a business should be structured.

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

Earmarked taxes are:

Implicit taxes are indirect taxes on tax-favored assets.

In a proportional (flat)tax rate system, the marginal tax rate will always equal the average tax rate.