Chapter 12 The Design of the Tax System
Test B
NOTE: THE FOLLOWING QUESTION IS REPEATED FROM THE ON LINE QUI!!ES" #OUR STUDENTS MA# HA$E ALREAD# SEEN THIS QUESTION AND ITS ANSWER"
1
Which of the following statements is correct? a. Since 1980, government revenue as a percent of GDP has ecline in the !nite States. ". When government revenues e#cee government spen ing, government is sai to "e running a eficit. c. $ational efense is the largest outla% for the fe eral government. . &s a nation gets richer, its ta# "ur en t%picall% increases as well. &$SW'() . &s a nation gets richer, its ta# "ur en t%picall% increases as well. *+P') , -'+1) D S'.*/0$) 1 012'.*/3') 1 (&$D0,) +
4
State an local governments receive the largest portion of their ta# revenues from a. social insurance ta#es an e#cise ta#es. ". sales ta#es an propert% ta#es. c. estate ta#es an income ta#es. . corporate income ta#es an sales ta#es. &$SW'() ". sales ta#es an propert% ta#es. *+P') , -'+1) D S'.*/0$) 1 012'.*/3') 1 (&$D0,) +
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& person6s ta# lia"ilit% refers to a. the percentage of income that a person must pa% in ta#es. ". the amount of income ta# a person owes to the government. c. the amount of ta# the government is re7uire to refun each person. . e uctions that can "e legall% su"tracte from a person6s income each %ear. &$SW'() ". the amount of income ta# a person owes to the government. *+P') , -'+1) . S'.*/0$) 1 012'.*/3') 1 (&$D0,) +
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*he government finances the "u get eficit "% a. "orrowing from the pu"lic. ". printing currenc% in the amount of the "u get eficit. c. selling government services for a large profit to the pu"lic. . re7uiring that "u get surpluses occur ever% two %ears to pa% off the eficits. &$SW'() a. "orrowing from the pu"lic. *+P') , -'+1) . S'.*/0$) 1 012'.*/3') 1 (&$D0,) + NOTE: THE FOLLOWING QUESTION IS REPEATED FROM THE ON LINE QUI!!ES" #OUR STUDENTS MA# HA$E ALREAD# SEEN THIS QUESTION AND ITS ANSWER"
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Which component of fe eral government spen ing is the largest? a. national efense ". health an e ucation c. Social Securit% . interest on the e"t &$SW'() c. Social Securit% *+P') , -'+1) D S'.*/0$) 1 012'.*/3') 1 (&$D0,) +
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159
15< .hapter 14=*he Design of the *a# S%stem
<
With a progressive income ta#, marginal ta# rates rise as income rises. *his means that in general, a. rich families will "enefit at the e#pense of poor families. ". ever% famil% will pa% the same percentage of their income in ta#es. c. lower>income families will pa% a larger percentage of their income in ta#es. . higher>income families will pa% a larger percentage of their income in ta#es. &$SW'() . higher>income families will pa% a larger percentage of their income in ta#es. *+P') , -'+1) . S'.*/0$) 1 012'.*/3') 1 (&$D0,) +
?
& ta# levie on the total amount spent in retail stores is calle a a. sales ta#. ". e#cise ta#. c. corporate ta#. . proportional ta#. &$SW'() a. sales ta#. *+P') , -'+1) D S'.*/0$) 1 012'.*/3') 1 (&$D0,) +
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*he ea weight loss associate with a ta# on a pro uct occurs "ecause a. the revenue generate "% the ta# will "e waste "% the government. ". those purchasing the pro uct will now have to pa% a higher price for the pro uct. c. costs to firms will increase since the% will "e responsi"le for collecting the ta#. . some consumers will choose not to consume the pro uct that is ta#e . &$SW'() . some consumers will choose not to consume the pro uct that is ta#e . *+P') , -'+1) . S'.*/0$) 4 012'.*/3') 4 (&$D0,) +
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When the government places a ta# on la"or earnings, one result is that people a. will have less incentive to wor@. ". tr% to save more of the income the% get to @eep. c. will choose to wor@ more in an attempt to replace the loss from the ta#. . ten to start their own "usiness so their income will not "e consi ere la"or earnings. &$SW'() a. will have less incentive to wor@. *+P') , -'+1) D S'.*/0$) 4 012'.*/3') 4 (&$D0,) +
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*a# evasion is a. a legal wa% to @eep from pa%ing ta#es. ". alwa%s illegal. c. filing ta#es after the &pril 19th ea line. . the same thing as ta# avoi ance. &$SW'() ". alwa%s illegal. *+P') , -'+1) D S'.*/0$) 4 012'.*/3') 4 (&$D0,) +
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'ach of the following is a reason wh% ta# loopholes e#ist 'A.'P* a. am"iguities in ta# laws. ". special treatment of specific t%pes of "ehavior. c. preferential ta# treatment for some "usiness activities. . the lac@ of consistent interpretations of the ta# laws "% the Supreme .ourt. &$SW'() . the lac@ of consistent interpretations of the ta# laws "% the Supreme .ourt. *+P') , -'+1) D S'.*/0$) 4 012'.*/3') 4 (&$D0,) +
14
*he marginal ta# rate for a lump>sum ta# a. is alwa%s Bero. ". is usuall% positive. c. is usuall% negative. . can "e either positive or negative, epen ing on the amount of income earne . &$SW'() a. is alwa%s Bero. *+P') , -'+1) . S'.*/0$) 4 012'.*/3') 4 (&$D0,) +
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.hapter 14=*he Design of the *a# S%stem 15?
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0ne wa% to re uce the a ministrative "ur en of the ta# s%stem is to a. re7uire ta#pa%ers to @eep a e7uate financial recor s throughout the %ear. ". simplif% the ta# laws. c. hire a part>time accountant or ta# attorne%. . change the &pril 19th ta# ea line to give ta#pa%ers a itional time to file their ta# returns. &$SW'() ". simplif% the ta# laws. *+P') , -'+1) . S'.*/0$) 4 012'.*/3') 4 (&$D0,) +
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/f the government ta#es the first C90,000 of a person6s income at 40D an all income a"ove C90,000 at 90D, then a person ma@ing C80,000 woul "e re7uire to pa% how much in ta#es? a. C10,000 ". C19,000 c. C40,000 . C49,000 &$SW'() . C49,000 *+P') , -'+1) . S'.*/0$) 4 012'.*/3') 4 (&$D0,) +
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/f the government were attempting to get people to save more of their income the% might choose to impose a a. consumption ta#. ". lump>sum ta#. c. progressive ta#. . regressive ta#. &$SW'() a. consumption ta#. *+P') , -'+1) . S'.*/0$) 4 012'.*/3') 4 (&$D0,) +
1<
& well> esigne ta# s%stem a resses "oth a. e7uit% an government revenue. ". e7uit% an efficienc%. c. government revenue an e"t re uction. . government revenue an e#pen iture. &$SW'() ". e7uit% an efficienc%. *+P') , -'+1) . S'.*/0$) 4 012'.*/3') 4, 5 (&$D0,) +
1?
/f Shannon earns C<0,000 a %ear an pa%s C14,000 in ta#es while Sean earns C90,000 %earl% an pa%s C18,000 in ta#es, this income ta# s%stem woul "e a. lump>sum. ". proportional. c. regressive. . progressive. &$SW'() ". proportional. *+P') , -'+1) . S'.*/0$) 4 012'.*/3') 4 (&$D0,) +
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Eump>sum ta#es are rarel% use in the real worl "ecause the% a. have high ea weight losses. ". have high a ministrative "ur ens. c. are ver% inefficient. . ta@e the same amount of mone% from "oth poor an rich. &$SW'() . ta@e the same amount of mone% from "oth poor an rich. *+P') , -'+1) . S'.*/0$) 4 012'.*/3') 4 (&$D0,) +
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158 .hapter 14=*he Design of the *a# S%stem
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*he Fmarriage ta#G refers to a. the increase in income e#clusion a marrie couple faces over two single people. ". the ta# that must "e pai in most states to receive a marriage license. c. a couple6s ta# lia"ilit% increasing as a result of getting marrie . . marrie couples with the same income alwa%s pa% the same amount of income ta#es. &$SW'() c. a couple6s ta# lia"ilit% increasing as a result of getting marrie . *+P') , -'+1) . S'.*/0$) 5 012'.*/3') 5 (&$D0,) + NOTE: THE FOLLOWING QUESTION IS REPEATED FROM THE ON LINE QUI!!ES" #OUR STUDENTS MA# HA$E ALREAD# SEEN THIS QUESTION AND ITS ANSWER"
40
*he greater the resources evote to compl%ing with ta# laws the a. higher the a ministrative "ur en of a ta#. ". lower the ea weight loss of a ta#. c. lower the a ministrative "ur en of a ta#. . more regressive the ta# s%stem "ecomes. &$SW'() a. higher the a ministrative "ur en of a ta#. *+P') , -'+1) D S'.*/0$) 4 012'.*/3') 4 (&$D0,) +
41
*he concept that each citiBen shoul ma@e an He7ual sacrifice6 an pa% ta#es accor ing to how well that person can shoul er the "ur en is calle a. the "enefits principle. ". vertical e7uit%. c. the a"ilit%>to>pa% principle. . horiBontal e7uit%. &$SW'() c. the a"ilit%>to>pa% principle. *+P') , -'+1) D S'.*/0$) 5 012'.*/3') 5 (&$D0,) +
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*he argument that might "e use to re7uire wealthier ta#pa%ers to pa% more in ta#es for law enforcement "ecause the% own more an therefore have more to protect than poorer ta#pa%ers woul "e "ase on a. vertical e7uit%. ". horiBontal e7uit%. c. the a"ilit%>to>pa% principle. . the "enefits principle. &$SW'() . the "enefits principle. *+P') , -'+1) D S'.*/0$) 5 012'.*/3') 8 (&$D0,) +
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;oriBontal e7uit% refers to the i ea that a. ta#pa%ers with a greater a"ilit% to pa% ta#es shoul pa% larger amounts. ". ta#pa%ers with similar a"ilities to pa% ta#es shoul pa% the same amount. c. all ta#pa%ers shoul pa% the same fraction of income regar less of a"ilit%. . ta#pa%ers shoul pa% ta#es "ase on the "enefits the% receive from government services. &$SW'() ". ta#pa%ers with similar a"ilities to pa% ta#es shoul pa% the same amount. *+P') , -'+1) D S'.*/0$) 5 012'.*/3') 5 (&$D0,) +
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*he corporate income ta# a. satisfies "oth e7uit% an efficienc% consi erations. ". oes not istort the incentives of customers since it is impose on corporations. c. is the "est e#ample of wh% the fl%paper theor% of ta# inci ence is correct. . falls ultimatel% on the owners, wor@ers an customers of the corporation. &$SW'() . falls ultimatel% on the owners, wor@ers an customers of the corporation. *+P') , -'+1) . S'.*/0$) 5 012'.*/3') 8 (&$D0,) +
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.hapter 14=*he Design of the *a# S%stem 159
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Which of the following statements woul $0* "e use "% an a vocate of the flat ta#? a. *he flat ta# woul eliminate man% of the e uctions allowe un er the current income ta#. ". 1ecause the flat ta# is so simple, the a ministrative "ur en of the ta# woul "e greatl% re uce . c. Ilat ta#es have no ea weight loss. . *he flat ta# is more li@e a consumption ta# which woul increase the incentive to save. &$SW'() c. Ilat ta#es have no ea weight loss. *+P') , -'+1) D S'.*/0$) 5 012'.*/3') 8 (&$D0,) +
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&$SW'() . &s a nation gets richer, its ta# "ur en t%picall% increases as well. *+P') , -'+1) D S'.*/0$) 1 012'.*/3') 1 (&$D0,) +
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&$SW'() ". sales ta#es an propert% ta#es. *+P') , -'+1) D S'.*/0$) 1 012'.*/3') 1 (&$D0,) +
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&$SW'() ". the amount of income ta# a person owes to the government. *+P') , -'+1) . S'.*/0$) 1 012'.*/3') 1 (&$D0,) +
8
&$SW'() a. "orrowing from the pu"lic. *+P') , -'+1) . S'.*/0$) 1 012'.*/3') 1 (&$D0,) +
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&$SW'() c. Social Securit% *+P') , -'+1) D S'.*/0$) 1 012'.*/3') 1 (&$D0,) +
<
&$SW'() . higher>income families will pa% a larger percentage of their income in ta#es. *+P') , -'+1) . S'.*/0$) 1 012'.*/3') 1 (&$D0,) +
?
&$SW'() a. sales ta#. *+P') , -'+1) D S'.*/0$) 1 012'.*/3') 1 (&$D0,) +
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&$SW'() . some consumers will choose not to consume the pro uct that is ta#e . *+P') , -'+1) . S'.*/0$) 4 012'.*/3') 4 (&$D0,) +
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&$SW'() a. will have less incentive to wor@. *+P') , -'+1) D S'.*/0$) 4 012'.*/3') 4 (&$D0,) +
10
&$SW'() ". alwa%s illegal. *+P') , -'+1) D S'.*/0$) 4 012'.*/3') 4 (&$D0,) +
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&$SW'() . the lac@ of consistent interpretations of the ta# laws "% the Supreme .ourt. *+P') , -'+1) D S'.*/0$) 4 012'.*/3') 4 (&$D0,) +
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&$SW'() a. is alwa%s Bero. *+P') , -'+1) . S'.*/0$) 4 012'.*/3') 4 (&$D0,) +
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&$SW'() ". simplif% the ta# laws. *+P') , -'+1) . S'.*/0$) 4 012'.*/3') 4 (&$D0,) +
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&$SW'() . C49,000 *+P') , -'+1) . S'.*/0$) 4 012'.*/3') 4 (&$D0,) +
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&$SW'() a. consumption ta#.
*+P') , -'+1) . S'.*/0$) 4 012'.*/3') 4 (&$D0,) +
1<
&$SW'() ". e7uit% an efficienc%. *+P') , -'+1) . S'.*/0$) 4 012'.*/3') 4, 5 (&$D0,) +
1?
&$SW'() ". proportional. *+P') , -'+1) . S'.*/0$) 4 012'.*/3') 4 (&$D0,) +
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&$SW'() . ta@e the same amount of mone% from "oth poor an rich. *+P') , -'+1) . S'.*/0$) 4 012'.*/3') 4 (&$D0,) +
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&$SW'() c. a couple6s ta# lia"ilit% increasing as a result of getting marrie . *+P') , -'+1) . S'.*/0$) 5 012'.*/3') 5 (&$D0,) +
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&$SW'() a. higher the a ministrative "ur en of a ta#. *+P') , -'+1) D S'.*/0$) 4 012'.*/3') 4 (&$D0,) +
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&$SW'() c. the a"ilit%>to>pa% principle. *+P') , -'+1) D S'.*/0$) 5 012'.*/3') 5 (&$D0,) +
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&$SW'() . the "enefits principle. *+P') , -'+1) D S'.*/0$) 5 012'.*/3') 8 (&$D0,) +
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&$SW'() ". ta#pa%ers with similar a"ilities to pa% ta#es shoul pa% the same amount. *+P') , -'+1) D S'.*/0$) 5 012'.*/3') 5 (&$D0,) +
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&$SW'() . falls ultimatel% on the owners, wor@ers an customers of the corporation. *+P') , -'+1) . S'.*/0$) 5 012'.*/3') 8 (&$D0,) +
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&$SW'() c. Ilat ta#es have no ea weight loss. *+P') , -'+1) D S'.*/0$) 5 012'.*/3') 8 (&$D0,) +