Financing State Government Test Bank Answers Ch.13

Chapter 13

Financing State Government

MULTIPLE CHOICE

1. What proportion of the Texas state budget comes from the federal government?

a. One half

b. One third

c. One quarter

d. Two thirds

Bloom’s: Knowledge

Difficulty: 1

Section: Introduction

Chapter: Financing State Government

Texas Standards: Texas LO-2. Describe the state and local political systems and their relationship with the federal government.

1. About 63% of the money that Texas receives from the federal government is spent on

a. health and human services.

b. public safety.

c. education.

d. transportation.

Bloom’s: Knowledge

Difficulty: 1

Section: Introduction

Chapter: Financing State Government

Texas Standards: Texas LO-2. Describe the state and local political systems and their relationship with the federal government.

1. For fiscal years 2015-2016, the Texas state budget was about $___ billion.

a. 75

b. 123

c. 209

d. 268

Bloom’s: Knowledge

Difficulty: 1

Section: Introduction

Chapter: Financing State Government

Texas Standards: Texas LO-2. Describe the state and local political systems and their relationship with the federal government.

1. A good is said to be nonexcludable if:
   1. You cannot practically prevent people from receiving it
   2. Your enjoyment of that good doesn’t diminish availability to others
   3. You can separate those who pay for the good from those who do not
   4. You must compete for the good

Bloom’s: Comprehension

Difficulty: 2

Section: Why Do Governments Provide Services to Citizens?

Chapter: Financing State Government

Texas Standards: Texas LO-2. Describe the state and local political systems and their relationship with the federal government.

1. If a good is nonrivalrous:
   1. It has no natural rival in the marketplace
   2. It cannot tolerate competition in the marketplace
   3. Its use or enjoyment does not diminish the availability for others user or enjoyment
   4. You cannot practically prevent people from receiving it

Bloom’s: Comprehension

Difficulty: 2

Section: Why Do Governments Provide Services to Citizens?

Chapter: Financing State Government

Texas Standards: Texas LO-2. Describe the state and local political systems and their relationship with the federal government.

1. Public goods are characterized by 2 key features. One of which is:
   1. Excludability
   2. Rivalrous consumption
   3. Monopolistic proclivity
   4. Nonexcludability

Bloom’s: Comprehension

Difficulty: 2

Section: Why Do Governments Provide Services to Citizens?

Chapter: Financing State Government

Texas Standards: Texas LO-2. Describe the state and local political systems and their relationship with the federal government.

1. Which of the following is a fundamental principle governments use to justify providing services to the public?

a. redistributive goods

b. nonexhaustion

c. tax capacity

d. regulatory goods

Bloom’s: Knowledge

Difficulty: 1

Section: Why Do Governments Provide Services to Citizens?

Chapter: Financing State Government

Texas Standards: Texas LO-2. Describe the state and local political systems and their relationship with the federal government.

1. Which of the following is an example of a common-pool good?
   1. Education
   2. Groundwater
   3. National defense
   4. A toll bridge

Bloom’s: Comprehension

Difficulty: 2

Section: Why Do Governments Provide Services to Citizens?

Chapter: Financing State Government

Texas Standards: Texas LO-2. Describe the state and local political systems and their relationship with the federal government.

1. Goods and service that can be, and often are, provided by the private sector, meaning they are exclusive and can be exhausted are called:
   1. Social goods
   2. Toll goods
   3. Common-pool goods
   4. Pure public goods

Bloom’s: Comprehension

Difficulty: 2

Section: Why Do Governments Provide Services to Citizens?

Chapter: Financing State Government

Texas Standards: Texas LO-2. Describe the state and local political systems and their relationship with the federal government.

1. Goods where nonpayers can effectively be prevented from utilizing, but use does not reduce the benefit to other people are called:
   1. Social goods
   2. Toll goods
   3. Common-pool goods
   4. Pure public goods

Bloom’s: Comprehension

Difficulty: 2

Section: Why Do Governments Provide Services to Citizens?

Chapter: Financing State Government

Texas Standards: Texas LO-2. Describe the state and local political systems and their relationship with the federal government.

1. Goods where, by nature or design, exclusion is impractical or impossible, but use or enjoyment can potentially exhaust the good are called:
   1. Social goods
   2. Toll goods
   3. Common-pool goods
   4. Pure public goods

Bloom’s: Comprehension

Difficulty: 2

Section: Why Do Governments Provide Services to Citizens?

Chapter: Financing State Government

Texas Standards: Texas LO-2. Describe the state and local political systems and their relationship with the federal government.

1. In Texas, citizens can be excluded from all of the following for nonpayment, EXCEPT for

a. water.

b. education.

c. sewer.

d. electricity.

Bloom’s: Knowledge

Difficulty: 1

Section: Why Do Governments Provide Services to Citizens?

Chapter: Financing State Government

Texas Standards: Texas LO-2. Describe the state and local political systems and their relationship with the federal government.

1. What is the primary source of revenue for state governments?

a. service charges or fees

b. federal grants

c. taxes on citizens

d. taxes on corporations

Bloom’s: Knowledge

Difficulty: 1

Section: Sources of State Revenue

Chapter: Financing State Government

Texas Standards: Texas LO-2. Describe the state and local political systems and their relationship with the federal government.

Map 13.1 – Total Taxable Resources per Capita, 2013

SOURCE: U.S. Department of the Treasury, Resource Center, “2015 Total Taxable Resources Estimates” (https://www.treasury.gov/resource-center/economic-policy/taxable-resources/Pages/Total-Taxable-Resources.aspx).

1. According to Map 13.1, which of the following states had the highes taxable resources per capita in 2013?
   1. Texas
   2. Virginia
   3. Georgia
   4. Arizona

Bloom’s: Application

Difficulty: 2

Section: Sources of State Revenue

Chapter: Financing State Government

Texas Standards: Texas LO-2. Describe the state and local political systems and their relationship with the federal government.

Map 13.1 – Total Taxable Resources per Capita, 2013

SOURCE: U.S. Department of the Treasury, Resource Center, “2015 Total Taxable Resources Estimates” (https://www.treasury.gov/resource-center/economic-policy/taxable-resources/Pages/Total-Taxable-Resources.aspx).

1. Based on Map 13.1, which region of the country had the highest levels of taxable resources per capita in 2013?
   1. The South
   2. The Southwest
   3. The Northeast
   4. The Northwest

Bloom’s: Application

Difficulty: 2

Section: Sources of State Revenue

Chapter: Financing State Government

Texas Standards: Texas LO-2. Describe the state and local political systems and their relationship with the federal government.

1. Which of the following is the measure of the wealth of a state or its ability to raise revenues relative to all other states?

a. tax exporting

b. tax base

c. tax effort

d. tax capacity

Bloom’s: Knowledge

Difficulty: 1

Section: Sources of State Revenue

Chapter: Financing State Government

Texas Standards: Texas LO-2. Describe the state and local political systems and their relationship with the federal government.

1. What is the primary point missed by the per capita tax measure?

a. tax exporting

b. tax base

c. tax effort

d. tax capacity

Bloom’s: Comprehension

Difficulty: 1

Section: Sources of State Revenue

Chapter: Financing State Government

Texas Standards: Texas LO-2. Describe the state and local political systems and their relationship with the federal government.

1. The per capita tax rate is not very informative about how much citizens actually pay because:
   1. Most people refuse to disclose how much they pay in taxes
   2. Taxes are often exported to other states
   3. It does not include sales taxes
   4. States overreport tax revenues

Bloom’s: Comprehension

Difficulty: 2

Section: Sources of State Revenue

Chapter: Financing State Government

Texas Standards: Texas LO-2. Describe the state and local political systems and their relationship with the federal government.

1. Which of the following states had the highest taxable resources per capita in 2013?

a. Texas

b. Florida

c. Wyoming

d. South Carolina

Bloom’s: Knowledge

Difficulty: 2

Section: Sources of State Revenue

Chapter: Financing State Government

Texas Standards: Texas LO-2. Describe the state and local political systems and their relationship with the federal government.

Table 13.1 - State Tax Revenue per $1,000 for 15 Most Populous States, 2012

Source: U.S. Census Bureau; Texas Legislative Budget Board. Fiscal Size-up 2014–15 Biennium, February 2014, 52–53.

1. According to Table 13.1, in a comparison of the 15 most populous states, where did Texas rank in the amount of revenue raised per $1,000 of personal income?

a. It was the median.

b. highest

c. near the lowest

d. near the highest

Bloom’s: Application

Difficulty: 2

Section: Sources of State Revenue

Chapter: Financing State Government

Texas Standards: Texas LO-2. Describe the state and local political systems and their relationship with the federal government.

Table 13.1 - State Tax Revenue per $1,000 for 15 Most Populous States, 2012

Source: U.S. Census Bureau; Texas Legislative Budget Board. Fiscal Size-up 2014–15 Biennium, February 2014, 52–53.

Based on Table 13.1,

1. Based on Table 13.1, while Tennessee is not represented, based on the other states, where would you expect to find Tennessee ranked in terms of state revenue per $1,000 in personal income?
   1. Ranked near the bottom
   2. Ranked near the top
   3. Ranked in the top third
   4. Ranked near the middle

Bloom’s: Application

Difficulty: 3

Section: Sources of State Revenue

Chapter: Financing State Government

Texas Standards: Texas LO-2. Describe the state and local political systems and their relationship with the federal government.

1. Which of the following is a consumer tax?

a. sales tax

b. tobacco tax

c. motor vehicle sales tax

d. All these answers are correct.

Bloom’s: Knowledge

Difficulty: 1

Section: Sources of State Revenue

Chapter: Financing State Government

Texas Standards: Texas LO-2. Describe the state and local political systems and their relationship with the federal government.

Figure 13.2 – Total Tax Revenue in Texas, 2014-2015

SOURCE: Texas Legislative Budget Board. Fiscal Size-up 2014–15 Biennium, February 2014, p. 27.

1. According to Figure 13.2, which of the following categories of taxes contributed the least to the Texas treasury in 2014–2015?

a. insurance occupation

b. franchise

c. motor vehicle sales and rental

d. sales

Bloom’s: Application

Difficulty: 2

Section: Sources of State Revenue

Chapter: Financing State Government

Texas Standards: Texas LO-2. Describe the state and local political systems and their relationship with the federal government.

Figure 13.2 – Total Tax Revenue in Texas, 2014-2015

SOURCE: Texas Legislative Budget Board. Fiscal Size-up 2014–15 Biennium, February 2014, p. 27.

1. According to Figure 13.2 which of the following categories of taxes contributed the most to the Texas treasury in 2014–2015?

a. oil and natural gas production

b. franchise

c. motor vehicle sales and rental

d. sales

Bloom’s: Application

Difficulty: 2

Section: Sources of State Revenue

Chapter: Financing State Government

Texas Standards: Texas LO-2. Describe the state and local political systems and their relationship with the federal government.

1. The majority of tax revenue in Texas comes from:
   1. Income taxes
   2. Franchise taxes
   3. Property taxes
   4. Consumer taxes

Bloom’s: Comprehension

Difficulty: 2

Section: Sources of State Revenue

Chapter: Financing State Government

Texas Standards: Texas LO-2. Describe the state and local political systems and their relationship with the federal government.

1. Almost three-quarters of the states that do not have a personal income tax system are

a. among the “Terrible Ten.”

b. progressive in their overall tax system.

c. in the Old South.

d. on the east coast.

Bloom’s: Comprehension

Difficulty: 3

Section: Equity in Taxes

Chapter: Financing State Government

Texas Standards: Texas LO-2. Describe the state and local political systems and their relationship with the federal government.

1. Which category of Texans, by income, pays the highest amount of sales and excises taxes as a percentage of income?

a. lowest 20%

b. second lowest 20%

c. middle 20%

d. second highest 20%

Bloom’s: Knowledge

Difficulty: 1

Section: Equity in Taxes

Chapter: Financing State Government

Texas Standards: Texas LO-2. Describe the state and local political systems and their relationship with the federal government.

1. Which category of Texans, by income, pays the lowest amount of sales and excises taxes as a percentage of income?

a. lowest 20%

b. second lowest 20%

c. middle 20%

d. second highest 20%

Bloom’s: Knowledge

Difficulty: 1

Section: Equity in Taxes

Chapter: Financing State Government

Texas Standards: Texas LO-2. Describe the state and local political systems and their relationship with the federal government.

1. ________ refers to the items that are subject to taxation.

a. Estates

b. The tax base

c. Taxation without representation

d. Real property

Bloom’s: Knowledge

Difficulty: 1

Section: Equity in Taxes

Chapter: Financing State Government

Texas Standards: Texas LO-2. Describe the state and local political systems and their relationship with the federal government.

1. A sales tax, especially when food and medicine are subject to the tax, can be described as what type of tax?

a. business

b. regressive

c. progressive

d. point of purchase

Bloom’s: Comprehension

Difficulty: 2

Section: Equity in Taxes

Chapter: Financing State Government

Texas Standards: Texas LO-2. Describe the state and local political systems and their relationship with the federal government.

1. Taxes in Texas are considered regressive because:
   1. The same percentage of income is taken from all citizens
   2. High-income persons pay a higher percentage of their income
   3. Low-income persons pay a higher percentage of their income
   4. The percentage of income take depends on a citizen’s age

Bloom’s: Comprehension

Difficulty: 2

Section: Equity in Taxes

Chapter: Financing State Government

Texas Standards: Texas LO-2. Describe the state and local political systems and their relationship with the federal government.

1. Tax shifting could result in any of the following EXCEPT

a. higher prices.

b. lower pay to workers.

c. higher profits to owners.

d. lower returns to investors.

Bloom’s: Comprehension

Difficulty: 3

Section: Equity in Taxes

Chapter: Financing State Government

Texas Standards: Texas LO-2. Describe the state and local political systems and their relationship with the federal government.

1. Which of the following taxes CANNOT be shifted?

a. personal income tax

b. business tax

c. property tax

d. franchise tax

Bloom’s: Comprehension

Difficulty: 2

Section: Equity in Taxes

Chapter: Financing State Government

Texas Standards: Texas LO-2. Describe the state and local political systems and their relationship with the federal government.

1. Which of the following is an example of tax shifting?
   1. The legislature votes to increase the cigarette tax
   2. A wealthy school district is required to give some of its tax revenue to a poorer school district
   3. A landlord raises the rent after his property taxes go up
   4. A waitress does not report the cash tips she received as income

Bloom’s: Comprehension

Difficulty: 3

Section: Equity in Taxes

Chapter: Financing State Government

Texas Standards: Texas LO-2. Describe the state and local political systems and their relationship with the federal government.

1. What are the two primary sources of revenue for local government in Texas?

a. property tax and state grants

b. block grants and local sales tax

c. local sales tax and property tax

d. income tax and state sales tax

Bloom’s: Knowledge

Difficulty: 1

Section: Local Taxes

Chapter: Financing State Government

Texas Standards: Texas LO-2. Describe the state and local political systems and their relationship with the federal government

1. Local governments collect and pay for ________ the cost of government in Texas.

a. about one-quarter

b. about one-third

c. about one-half

d. about three-quarters

Bloom’s: Knowledge

Difficulty: 1

Section: Local Taxes

Chapter: Financing State Government

Texas Standards: Texas LO-2. Describe the state and local political systems and their relationship with the federal government

Table 13.5 - Property Tax Collections by Local Governments in Texas, 2009–2014

Source: Comptroller of Public Accounts in Legislative Budget Board, Fiscal Size-Up 2014–15, p. 42, Figure 50.

1. According to Table 13.5, how have property tax collections changing in Texas from 2009 to 2014?
   1. Property tax collections increased nearly $10 million
   2. Property tax collections increased by $1 million
   3. Property tax collections decreased by $5 million
   4. Property tax collections have not changed during this time

Bloom’s: Application

Difficulty: 2

Section: Local Taxes

Chapter: Financing State Government

Texas Standards: Texas LO-2. Describe the state and local political systems and their relationship with the federal government

Table 13.5 - Property Tax Collections by Local Governments in Texas, 2009–2014

Source: Comptroller of Public Accounts in Legislative Budget Board, Fiscal Size-Up 2014–15, p. 42, Figure 50.

1. Based on Table 13.5, about what proportion of total property tax collections goes to school districts?
   1. About one third
   2. About one quarter
   3. About one half
   4. About one tenth

Bloom’s: Application

Difficulty: 2

Section: Local Taxes

Chapter: Financing State Government

Texas Standards: Texas LO-2. Describe the state and local political systems and their relationship with the federal government

1. Texas school districts are heavily dependent on revenue from:
   1. Income taxes
   2. Property taxes
   3. Excise taxes
   4. Sales taxes

Bloom’s: Knowledge

Difficulty: 1

Section: Local Taxes

Chapter: Financing State Government

Texas Standards: Texas LO-2. Describe the state and local political systems and their relationship with the federal government

1. Which level of government is most heavily dependent on service charges and fees to finance their services?

a. federal

b. state

c. county

d. city

Bloom’s: Knowledge

Difficulty: 2

Section: Nontax Revenue Sources

Chapter: Financing State Government

Texas Standards: Texas LO-2. Describe the state and local political systems and their relationship with the federal government

1. The greatest source of nontax revenue in Texas comes from

a. fees, fines, licenses, and penalties.

b. lottery income.

c. interest income.

d. land income.

Bloom’s: Knowledge

Difficulty: 2

Section: Nontax Revenue Sources

Chapter: Financing State Government

Texas Standards: Texas LO-2. Describe the state and local political systems and their relationship with the federal government

1. How are school districts funding their increased share of the cost of local education?

a. higher local property tax

b. the lottery

c. special excise taxes

d. federal grants

Bloom’s: Knowledge

Difficulty: 1

Section: Expenditures: Where the Money Goes

Chapter: Financing State Government

Texas Standards: Texas LO-2. Describe the state and local political systems and their relationship with the federal government

1. Health and human services is funded primarily with

a. property taxes.

b. the lottery.

c. special excise taxes.

d. federal grants.

Bloom’s: Knowledge

Difficulty: 1

Section: Expenditures: Where the Money Goes

Chapter: Financing State Government

Texas Standards: Texas LO-2. Describe the state and local political systems and their relationship with the federal government

1. The Texas lottery:
   1. Was banned in 2012
   2. Is one of the least successful lotteries in history
   3. Has seen declining revenue in recent years
   4. Contributes a large portion of the state’s total budget

Bloom’s: Knowledge

Difficulty: 1

Section: Expenditures: Where the Money Goes

Chapter: Financing State Government

Texas Standards: Texas LO-2. Describe the state and local political systems and their relationship with the federal government

1. In recent years, most of the growth in state expenditures in Texas has been driven by

a. inflation.

b. population increases.

c. the cost of healthcare.

d. public safety costs.

Bloom’s: Knowledge

Difficulty: 1

Section: Expenditures: Where the Money Goes

Chapter: Financing State Government

Texas Standards: Texas LO-2. Describe the state and local political systems and their relationship with the federal government

1. During the 1980s there were 10 special sessions of the Texas legislature to correct revenue shortfalls. What was the cause of these shortfalls?

a. inflation

b. reduction in federal grants under President Reagan

c. declining price of oil

d. white flight to the suburbs

Bloom’s: Comprehension

Difficulty: 2

Section: Continuing Issues in State Finance in Texas

Chapter: Financing State Government

Texas Standards: Texas LO-2. Describe the state and local political systems and their relationship with the federal government

1. What is meant by income-elastic taxes?

a. taxes that change quickly relative to economic conditions

b. taxes that can easily stretch to meet funding shortfalls

c. taxes that change slowly relative to economic conditions

d. taxes that have been given a special “elastic” designation as part of the budget “fix”

Bloom’s: Knowledge

Difficulty: 1

Section: Continuing Issues in State Finance in Texas

Chapter: Financing State Government

Texas Standards: Texas LO-2. Describe the state and local political systems and their relationship with the federal government

1. When the price of oil experiences a prolonged price increase,

a. the Texas economy improves and Texas state revenues increase.

b. the Texas economy improves and Texas state revenues decrease.

c. the Texas economy suffers and Texas state revenues increase.

d. the Texas economy suffers and Texas state revenues decrease.

Bloom’s: Analysis

Difficulty: 2

Section: Continuing Issues in State Finance in Texas

Chapter: Financing State Government

Texas Standards: Texas LO-2. Describe the state and local political systems and their relationship with the federal government

1. How many states do not have any form of personal income tax?

a. 2

b. 7

c. 13

d. 19

Bloom’s: Knowledge

Difficulty: 1

Section: Continuing Issues in State Finance in Texas

Chapter: Financing State Government

Texas Standards: Texas LO-2. Describe the state and local political systems and their relationship with the federal government

1. What is the second-largest source of revenue for Texas state government?

a. service tax

b. income tax

c. sales tax

d. franchise fee

Bloom’s: Knowledge

Difficulty: 1

Section: Continuing Issues in State Finance in Texas

Chapter: Financing State Government

Texas Standards: Texas LO-2. Describe the state and local political systems and their relationship with the federal government

1. When economic conditions are bad, state tax revenues in Texas:
   1. Increase
   2. Decrease
   3. Are unaffected
   4. Must be shared with the federal government

Bloom’s: Knowledge

Difficulty: 1

Section: Continuing Issues in State Finance in Texas

Chapter: Financing State Government

Texas Standards: Texas LO-2. Describe the state and local political systems and their relationship with the federal government

ESSAY

1. Compare and contrast benefit-based taxes and taxation based on the ability to pay.
2. What are collective benefits? Why do governments provide them?
3. Explain how the selective use of sales tax in Texas contributes to the regressive nature of its tax structure.
4. Define and compare regressive taxes, progressive taxes, and proportional taxes. Which type of tax is most common in Texas? Why?
5. Discuss tax shifting, and cite specific examples showing how the burden of property and business taxes can be shifted.
6. What are the top two expenditure categories of Texas government? Does the federal government help provide funds for these expenditures, and if so, how important is the federal government’s help?
7. Define income-elastic taxes. Discuss how Texas’s tax base affects the state’s tax revenues.
8. What are the main suggestions for increasing government revenue? Pick two and discuss the pros and cons of each.
9. Name and describe the form of corporate “income tax” Texas uses. To whom does it apply? How has it changed since its creation?