Taxation And Resource Allocation Ch17 Exam Questions - Microeconomics Principles and Policy 14e | Test Bank by Baumol by William J. Baumol. DOCX document preview.
Indicate whether the statement is true or false. |
1. The concept of equity pertains to the fairness of a tax.
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2. Horizontal equity means that equally situated individuals should be taxed equally.
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3. Tax loopholes reduce the excess tax burden on individuals.
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4. Direct taxes are levied on specific economic activities.
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5. Payroll tax is a proportional tax.
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6. The share of GDP taken by taxes is considerably higher in the United States than in other countries.
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7. Corporate taxes are a direct tax.
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8. One major problem with Social Security is that it is a “pay as you go” system.
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9. Consumers can avoid excess tax burden by purchasing more goods that are exempt from sales taxes.
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10. When we say most Americans are in the 15-percent tax bracket, we mean federal taxes are about 15 percent of the income of most Americans.
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11. The system of grants from one level of government to another is an example of fiscal federalism.
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12. States rely primarily on income taxes as a source of revenue.
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13. An excess burden is present when taxpayers alter their behavior on account of taxation.
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14. When the average tax rate rises as income rises, this is known as progressive taxation.
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15. The marginal tax rate is the change in the average tax rate as income increases.
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16. The head tax is regressive.
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17. No tax can lead the economy to higher levels of efficiency.
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18. The payroll tax is the federal government’s biggest source of revenue.
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19. Vertical equity refers to the notion that individuals at all levels should be taxed equally.
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20. A tax that reduces economic efficiency is always bad policy.
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21. The federal government receives most of its revenue from three sources: personal income tax, corporate income tax, and payroll tax.
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22. Vertical equity in income taxation refers to the notion that persons with different levels of income should be taxed differently.
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23. Property taxes are the main source of funding for public schools.
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24. Employers can shift payroll taxes by substituting capital for labor.
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25. Above a certain income, the marginal social security tax drops to zero.
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26. The individual income tax, the inheritance tax, and the head tax are all examples of direct taxes.
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27. The share of GDP taken by taxes has increased dramatically since the 1960s.
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28. Tax loopholes are equally available to all taxpayers.
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29. Social Security benefits funded by from dividends from the Social Security Trust Fund.
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30. Sales taxes, property taxes, and value-added taxes are examples of indirect taxes.
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31. A regressive tax is one in which the average tax rate falls as income rises.
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32. A proportional tax is one in which the fraction of income paid in taxes rises as a person’s income increases.
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33. Existing loopholes erode the progressivity of the U.S. tax system.
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34. Federal tax loopholes in personal income tax provide benefits only to very high-income people.
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35. For about the past 45 years, federal taxes have remained relatively constant as a percentage of GDP.
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36. The more inelastic the demand for a product, the larger the share of the tax that will be paid by consumers.
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37. Direct taxes are levied directly on people or corporations.
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38. The ability of homeowners to deduct mortgage interest costs from their taxes makes the income tax more progressive.
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39. The total burden of a tax equals tax receipts plus excess burden.
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40. The incidence of a tax explains what group pays the burden of a tax.
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41. For about the past 45 years, state and local taxes have remained relatively constant as a percentage of GDP.
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42. If Bob is taxed for each soda he buys, he faces a direct tax.
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43. State and local governments receive money from sales taxes, property taxes, and the federal government.
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44. Over the past decade, increasing real wages have offset slower population growth adding to the Social Security Trust Fund.
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45. Vertical equity refers to the notion that equally situated individuals should be taxed equally.
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46. The sales tax is generally considered to be a regressive tax.
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47. Excise taxes are a form of sales tax.
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48. The ability to shift a tax burden depends on the relative elasticities of demand and supply for the taxed commodity.
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49. The payroll tax system is a proportional tax for all income earners.
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50. The corporate tax applies to firms’ total revenues.
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51. From the passage of the 16th amendment to the U.S. Constitution, income taxes became the primary source of income for the United States.
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52. Taxation alters the behavior patterns of individuals.
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53. The benefits principle states that the users of a service should pay for that service.
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54. The payroll tax is a direct tax.
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55. Loopholes reduce the efficiency of the tax system.
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56. Indirect taxes are levied on specific economic activities.
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57. Taxation can promote good social policy while minimizing economic inefficiency.
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58. Payments to Social Security recipients would decline if the retirement age were lowered.
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59. The incidence of a payroll tax is borne by both employers and employees.
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60. A progressive tax is one in which the fraction of income paid in taxes rises as a person’s income increases.
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Indicate the answer choice that best completes the statement or answers the question. |
61. On necessities, more of the incidence of tax is
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62. Which of the following taxes is least likely to be shifted?
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63. Which of the following is a direct tax?
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64. Fiscal federalism refers to
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65. The people most likely to pay little personal income tax to the U.S. government are
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66. State governments’ main source of revenue is
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67. The largest single source of revenue for the federal government is the
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68. Taxation lowers social welfare when the taxed good
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69. The idea of horizontal equity in taxation implies that
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70. The most important indirect taxes in the United States are
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71. If Jenny’s taxes are $10,000 when she earns $50,000 and $12,000 when she earns $60,000, then
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72. In 2005, the median income of renters was $26,317 and the median income of homeowners was $50,505. If imputed rent were added to household income or rent became deductible, the personal income tax would become
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73. The second largest source of income for the federal budget is
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74. Some enterprising individuals produce and sell alcoholic beverages without collecting or paying legally required taxes. These “moonshiners” often have to hide their production facilities and hire fast driving delivery personnel to avoid various authorities. These moonshiners
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75. A $10 fee to obtain a driver’s license is a
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Figure 18-3  |
76. In which panel of Figure 18-3 would an excise tax be borne entirely by the consumer?
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77. The payroll tax appears to be a proportional tax. In reality, it is
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78. The way in which most persons pay their personal income tax is in the form of
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79. Many environmentalists have advocated a substantial increase in the gasoline tax to cut down the federal deficit and to reduce pollution due to auto emissions. Such a tax increase would be devastating to people who commute significant distances to work. In fact, it would provide an incentive to relocate closer to work or change jobs. Economists refer to such effects of taxes as the
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80. Which of the following statements is not true?
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81. Social Security payroll taxes are
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82. Which of the following is not true of tax loopholes?
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83. Since the end of World War II, corporate income taxes have accounted for
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84. The economic burden of an excise tax
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85. When a tax is imposed on an item, it can generally be said that the incidence of the tax is
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86. Suppose Mishka buys 15 apples per month her total tax burden from a $3 per apple tax is $100 every month.
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87. Fiscal federalism
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88. Most loopholes in the income tax system
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89. The total burden of a tax is the
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90. Economists generally think that the ____ tax is among the best ways to raise revenue.
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91. The benefits principle states that those who
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92. The Social Security system in the United States today is
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93. Horizontal equity is a difficult concept to implement because
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94. Federal, state, and local taxes
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95. Which of the following is most consistent with the benefits principle?
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96. In the area of taxation, the trade-off between equity and efficiency
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97. Which of the following is not true about the tax exemptions on interest from municipal bonds?
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98. A tax that creates an excess burden may nevertheless improve efficiency if
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99. A head tax applied to each person in the United States would
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100. Most state governments finance their budgets through ____, and most local governments finance their budgets through ____.
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101. “Those most able should pay the highest taxes” reflects the
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102. The ability-to-pay principle is most closely tied to the concept of
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103. If Harun’s taxes are $20,000 when he earns $100,000 and $15,000 when he earns $80,000, then
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104. The exemption of municipal bond interest income from federal personal income taxes
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105. In England, the Thatcher government substituted a “poll tax” for the local property tax. People took strong exception to the tax, which is basically a head or “lump sum” tax. The principle of taxation such a tax violates is called
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106. Harun earned $50,000 in salary and paid $10,000 in federal taxes. If he receives $2,000 in interest payments from municipal bonds,
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107. A tax has an excess burden whenever
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108. In practice, turning horizontal and vertical equity into tax law
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109. Since World War II, the share of corporate income tax collections in total federal revenue has been
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110. If Linda’ annual income is $160,000 and she pays $35,000 in taxes, and Paul’s annual income is $100,000 and he pays $25,000 in taxes, the tax system is
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111. State personal income taxes are
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112. Examples of indirect taxes are
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113. Which of the following government entities relies most heavily on sales taxes?
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114. The term “fiscal federalism” refers to
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115. The money for Social Security payments to current retirees comes from
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116. Americans generally pay
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117. If a corporation earns $1 million in revenues on $750,000 in expenses, including $415,000 from payrolls, and the corporate tax rate is 10 percent with a $100,000 exemption, then the corporate taxes would be
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118. The burden of a tax is
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119. Social Security payroll taxes are examples of
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120. Faced with a shortage of funds to pay claims, the workman’s compensation systems in many states have been forced to raise the workman’s compensation tax rate substantially. The tax is paid by employers. Employers have complained that they cannot afford the tax and threaten to go out of business. Assuming the supply of labor is very inelastic, one can argue that ultimately the burden of this tax actually will rest
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121. The incidence of a tax refers to
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122. An efficient tax is one that raises the desired tax revenue but creates the least possible
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123. Many economists believe a comprehensive income tax
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124. Under a proportional tax, the fraction of income paid in taxes
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125. Cities and towns mainly rely for revenue on
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126. The federal income tax began in the United States with the
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127. Which is not a significant source of state and local government revenues?
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Figure 18-2  |
128. Figure 18-2 shows the widget market before and after an excise tax is imposed. What percentage of the tax per widget is borne by consumers, considering the true economic incidence of the tax?
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129. If a tax is progressive, the average tax rate
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130. A payroll tax with a 4.5 percent tax rate and exemption for income above $42,000 is
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131. Taxes on sales of liquor, tobacco, and tires are examples of
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132. If a tax is proportional, the average tax rate
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133. Homeowners
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134. The concept of vertical equity is that
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135. A tax that does not change consumers’ behavior creates no
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136. The incidence of cigarette taxes falls mainly on
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137. Officially, the payroll tax is referred to as
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138. The allocation of tax burden
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139. If Ron earns $50,000 in salary and pays income taxes of $15,000, and Harry earns $50,000 from investment dividends taxed at 20 percent, this would be
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140. Which is least likely to help in understanding who bears the tax incidence?
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141. The federal government receives most of its revenues from
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142. The United States Social Security system
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143. Which of the following is an example of a direct tax?
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144. Corporate income taxes account for about what percent of federal revenues?
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145. Which is not an effect of tax loopholes?
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146. The main difference between direct and indirect taxes is that
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147. The notion that equally situated individuals should be taxed equally is referred to as
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148. Which of the following best reflects the ability-to-pay philosophy of taxation?
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Figure 18-2 |
149. Figure 18-2 shows the widget market before and after an excise tax is imposed. The tax per widget equals ____.
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150. Rhode Island has enacted a substantial increase in the tax on employers that finances the workman’s compensation system. For some employers, the tax is about $25 per $100 paid in wages. Employers claim they cannot afford to pay the tax. Under which of the following conditions will the actual burden of the tax fall on employers?
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151. Mrs. Dodge has $8 million in income and pays no income taxes. Her income is most likely
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152. One major tax loophole intended to help state & local governments raise funds is
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153. If the supply of a good is perfectly inelastic, then suppliers will bear the full burden of an excise tax
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154. If Hermione pays $10.00 in taxes on $100 of income and $10.25 on $101 of income, which of the following is not true?
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155. When people alter behavior in response to taxes, which of the following is not true?
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156. An excise tax
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157. Which is not true of current U.S. payroll taxes?
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158. The excess burden of an excise tax is
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159. If demand is more elastic, the portion of an excise tax borne by a buyer will
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Figure 18-2 |
160. Figure 18-2 shows the widget market before and after an excise tax is imposed. After the tax is imposed, the amount that a firm keeps for itself from the sale of each widget is ____.
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161. In Country X, the government requires employers to collect 9 percent of every employee’s compensation as payroll tax. This is an example of
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162. The second largest source of revenue for the federal government is the
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Figure 18-1  |
163. According to the graph in Figure 17-1, tax collections will be which of the following?
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164. The concept that describes the situation where the economy has used every available opportunity to make someone better off without making someone else worse off is
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165. A tax system under which an individual pays a higher fraction of his income in taxes at higher levels of income is formally described as
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166. A progressive income tax system can be defined as one in which
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167. Which of the following situations is a clear application of the benefits principle of taxation?
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168. The courts in some states have declared the financing of public schools by local property taxes unconstitutional because
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Figure 18-1 |
169. According to the graph in Figure 18-1, the increase in the amount that consumers pay as a result of the tax is
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170. The Social Security Trust Fund
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171. Under a regressive tax, the fraction of income paid in taxes
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172. An excise tax is
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173. A tax loophole is
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174. If the demand curve for a product is vertical, then
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175. Which of the following is an example of an indirect tax?
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176. In 1984, the South Carolina State Supreme Court ruled that a 20 percent admission tax on X-rated movies was unconstitutional. When the affected cinemas sought a refund of collected taxes, they were denied on the grounds that the tax, although collected by the theater, was indeed paid by the theatergoers. The Supreme Court apparently believed
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Figure 18-3 |
177. In which panel of Figure 18-3 would an excise tax be borne entirely by the supplier?
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178. The Social Security System
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179. Compared to other countries, the U.S. federal government relies
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180. Who actually pays an excise tax
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181. Members of the European Union (EU), rely heavily on this form of indirect taxes.
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Figure 18-2 |
182. Figure 18-2 shows the widget market before and after an excise tax is imposed. The revenue collected by the tax is ____.
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183. If two families are identical with respect to size, income, general expenses, etc., and are taxed equally, we say that there is
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184. Which of the following is not true for the U.S. payroll tax?
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Figure 18-1 |
185. According to the graph in Figure 18-1, the tax is which of the following?
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186. Edgar Browning and William Johnson, in a paper published in the Journal of Political Economy (1984), presented evidence that a one-dollar transfer to the bottom 40 percent of income distribution costs the top 60 percent nine dollars. If correct, this finding proves
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187. Vertical equity refers to the idea that
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188. The share of GDP going to federal taxes
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189. If a tax is regressive, the average tax rate
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190. If Gordon’s average tax rate is 10 percent when he earns $100 and his average tax rate is 10.25 percent when he earns $101, then
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191. Which of the following taxes is most likely to be shifted?
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192. Which of the following is not true?
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193. “People who make more money should pay higher taxes” is an example of
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194. State and local governments typically spend most of their budgets on providing
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195. The payroll tax represents
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196. The average tax rate is
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197. Which of the following would be the most likely candidate for direct application of the benefits principle of taxation?
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198. A factor that would reduce the ability of the Social Security system to maintain current benefit levels with constant tax rates is
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199. A congress member concerned about ensuring vertical equity in taxation would be most likely to argue for obtaining government revenue through a
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200. In which of the following examples is excess burden not present?
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201. Sometimes, the taxes with the smallest excess burden are
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202. What are tax loopholes and what are their effects? |
203. Describe the U.S. Social Security system and explain how it is funded. |
204. What is personal income tax? On which principle does the federal government levy this tax? |
205. Explain the purpose of payroll taxes. Is it a proportional form of tax? |
206. Explain why some argue that income tax loopholes primarily benefit the rich. |
207. What are the three principles of equity applied to taxation in the text? |
208. Why do many economists rate the income tax high in efficiency and equity terms? |
209. How is state and local government funded and how does such funding differ from federal government funding? |
210. Explain the concept of efficiency as it relates to taxation. |
211. What is the flypaper theory of tax incidence? This theory is typically wrong. Why? |
212. Many Americans believe that taxes have been gobbling up an ever-increasing share of the U.S. economy. Is this observation correct? Explain. |
213. Explain whether or not the ability-to-pay principle of tax equity is consistent with the benefits received principle of taxation. |
214. Are property taxes progressive or regressive? |
215. Who bears the burden of an excise tax if demand is perfectly inelastic? What if supply is perfectly inelastic? Use graphs in your explanation. |
216. The authors of the text suggest that a comprehensive personal income tax with few loopholes would be efficient and equitable. What is their reasoning for this statement? |
217. What is the controversy surrounding property taxes as a source for school funding? |
218. Define the following terms and explain their importance to the study of economics: a. regressive tax b. proportional tax c. progressive tax d. direct tax e. indirect tax |
219. Explain the excess burden of a tax on luxury yachts. |
220. Briefly and concisely define the following terms: a. fiscal federalism b. horizontal equity c. vertical equity d. benefits principle of taxation |
221. What are the arguments for and against federal government grants to states? |
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Microeconomics Principles and Policy 14e | Test Bank by Baumol
By William J. Baumol