Chapter 1

Jose has been offered a new job. The new job will pay more than his current job. Jose is hesitant to take the new job because it will cause his income to exceed the maximum amount in his current tax bracket. He is concerned that the increase in taxes will exceed his increased income from the new job.

This is not possible. Only the portion of income that exceeds Jose's current bracket will be taxed at the higher rate, not his total taxable income.

Which of the following decisions would most likely NOT be influenced by our tax system?

Choosing a vacation destination

Which of the following criteria is NOT a characteristic of a good tax system?

Complexity

Which of the following statements is INCORRECT regarding sales tax?

Products purchased on the internet are never subject to sales tax.

Which of the following statements is INCORRECT regarding use tax?

The retailer is responsible for collecting and remitting the tax to the state where the consumer resides.

Shelby bought a dress costing $200 from Arlene's Dress Shop in a state where there is a sales tax rate of 5%. Shelby had to pay (1) dollars in sales tax.

1. $10

When evaluating a tax system, (1) considers how the tax burden should be distributed across taxpayers.

1. Equity

A(n) (1) tax is defined as the reduced before-tax return that a tax-favored asset produces because of its tax-advantaged status.

1. Implicit

(1) forecasting ignores that taxpayers may respond to a tax change by changing their behavior. (2) forecasting attempts to account for possible taxpayer responses to the tax law change.

1. Static 2. Dynamic

The formula to calculate the amount of tax is the tax (1) multiplied by the tax (2).

1. base 2. rate

A(n) (1) tax is based on the quantity sold of particular products, rather than the monetary amount of the retail selling price.

1. excise

The general purpose of a tax is to raise (1) to fund the operations of the (2).

1. funds 2. government

Most states and the District of Columbia impose (1) (2) on individuals and corporations who either reside in or earn income within the state. (Enter one word per blank)

1. income 2. tax

The federal individual income tax system in the United States uses a(n) (1) tax structure.

1. progressive

An example of a tax assessed by a state or local government is (1) tax.

1. property

A sales tax is an example of a tax that uses a(n) (1) tax rate structure when compared to its tax base.

1. proportional

The tax (1) determines the level of taxes imposed on the tax base and is usually expressed as a percentage.

1. rate

The social security tax is an example of a(n) (1) tax structure because as the tax base increases, the taxes paid increase, but the marginal tax rate decreases.

1. regressive

Assessing the (1) of a tax system means determining the amount of tax revenue needed to fund the government and ensuring that the funds are provided by the system.

1. sufficiency

The purpose of (1) tax is to provide temporary income for individuals terminated from their jobs without cause.

1. unemployment

True or false: The federal estate tax is the MOST significant tax assessed by the U.S. government because it generates more revenue for the government than other types of federal taxes.

False

True or false: The general purpose of a tax is to provide incentives that will stimulate and improve the economy.

False

Which of the following taxes uses a proportional tax rate structure?

Federal corporate income tax

Which of the following taxes uses a progressive tax rate structure?

Federal individual income tax

When evaluating a tax system, (1) suggests that the system should be designed to facilitate the collection of tax revenues without undue hardship on the taxpayer or the government.

1. convenience

Which of the following federal taxes comprises the highest percentage (almost half) of all tax revenues collected by the U.S. government?

Income tax

Which of the following statements is correct regarding state income tax?

Many states also impose an income tax on corporations.

Is it true that a "tax" is essentially the same as a fine or penalty?

No

Which of the following statements describes implicit taxes?

The reduced before-tax return that a tax-favored asset produces because of its tax-advantaged status

True or false: The estate tax is based on the fair market value of the estate upon death.

True

Select all that apply Which of the following types of taxes are paid by employers based upon their employees' wages? (Check all that apply.)

Unemployment tax Medicare tax Social Security tax

In order to raise revenue in the city of Hamlet, the city considered assessing a local tax on food served in restaurants. When forecasting the amount of revenue that would be generated by the new tax, the budget officials suggested that about 10% of current customers would likely quit eating out in Hamlet and drive to the nearest town. This is an example of:

dynamic forecasting

True or false: A tax can be defined as a fine or penalty.

false

A(n) ______ tax structure applies the same tax rate to all levels of income, while a(n) ______ tax structure applies higher tax rates as the tax base increases and a(n) ______ tax structure applies lower tax rates as the tax base increases.

proportional, progressive, regressive

The tax base for sales tax is the ______ of goods and certain services provided.

retail sales price

A tax imposed on a legal product or service that may be addictive in nature is known as a(n):

sin tax

Which type of tax is based on the retail price of goods owned, possessed, or consumed within a state that were NOT purchased within the state?

use tax

Arlene is single and has taxable income of $18,000. Her tax liability is currently $2,236. She has the opportunity to earn an additional $5,000 if she accepts and completes a special project at work. There are no additional expenses to offset the $5,000 income. Consequently, Arlene will have a tax liability of $2,986 if she accepts the special project. Arlene has a marginal tax rate of (1)%.

1. 15%

When evaluating a tax system, (1) suggests that taxpayers should be able to determine when to pay the tax, where to pay the tax, and how to determine the tax.

1. Certainty

The first personal income tax was enacted in 1861 to fund the (1) (2). (Enter one word per blank)

1. Civil 2. War

When evaluating a tax system, (1) requires that a good tax system minimize the compliance and administration costs associated with the system.

1. Economy

Arlene is single and has taxable income of $34,000. Her tax liability is currently $4,636. She has the opportunity to earn an additional $6,000 this year. Her tax liability will grow to $5,771 if she receives the additional income. What is Arlene's marginal tax rate for the additional $6,000?

18.92%

Marcus and Lydia Brown are married and filing jointly and have $155,000 in taxable income. Lydia has been offered a job promotion which will increase their taxable income to $174,000 in 2019. This additional income will move them into the next graduated tax bracket (24%). Which of the following statements is correct?

A portion of the additional $19,000 will be taxed at 22% and a portion will be taxed at 24%.

Select all that apply Which of the following criteria are often used to evaluate a good tax system? (Check all that apply.)

Certainty Sufficiency Economy Equity Convenience

Which of the following common decisions would most likely NOT be influenced by the United States income tax laws?

Choosing a public school for your children

Judging the equity of a tax system is best described by which of the following?

Considering how the tax burden should be distributed across taxpayers

Judging the certainty of a tax system is best described by which of the following?

Considering that taxpayers should be able to determine when, where, and how to calculate and pay the tax

Judging the sufficiency of a tax system is best described by which of the following?

Considering whether tax revenues generated are adequate to meet the financial needs of the government

Economy is listed as one criteria of a good tax system. What is meant by economy in this context?

Economy requires that the system should minimize compliance and administration costs.

Which of the following taxes is based on the quantity of a product sold, rather than the selling price of the product sold?

Excise tax

Which tax is assessed to provide medical insurance for individuals who are elderly or disabled?

Medicare tax

Select all that apply Which of the following taxes are commonly assessed by state and/or local governments? (Check all that apply.)

Property tax Sales tax Income tax

Blade pays tax of $5,000 on taxable income of $50,000 while Caden pays tax of $10,000 on taxable income of $100,000. What type of tax rate structure appears to be in force?

Proportional

Which of the following statements is true regarding sin taxes?

Sin taxes discourage undesirable, yet legal, behaviors such as smoking and drinking.

Which tax is assessed to provide monthly retirement, survivor, and disability benefits for qualifying individuals?

Social Security taxes

Which of the following taxes uses a regressive tax rate structure?

Social security tax

Match the evaluation criteria (on the left) with their respective definitions (on the right).

Sufficiency: Considers whether tax revenues generated are adequate to meet the financial needs of the government Equity: Considers how the tax burden should be distributed across taxpayers Certainty: Considers that taxpayers should be able to determine when, where, and how to calculate and pay the tax Convenience: Suggests that a tax system should be designed to facilitate the collection of tax revenue without undue hardship Economy: Considers that the system should minimize compliance and administration costs

Judging the convenience of a tax system is best described by which of the following?

Suggesting that a tax system should be designed to facilitate the collection of tax revenue without undue hardship

Which of the following terms describes the level of taxes imposed on the tax base and is usually expressed as a percentage?

Tax rate

Which of the following sentences describes the average tax rate?

The average level of taxation on each dollar of the taxpayer's taxable income

What is the tax base for the gift tax?

The fair market value of the gift on the date the gift is given

Select all that apply Which of the following statements are correct regarding the history of the U.S. personal income tax? (Check all that apply.)

The income tax was once ruled unconstitutional. The 16th Amendment to the U.S. Constitution gives Congress the power to assess income tax on individuals.

Which of the following sentences describes the marginal tax rate?

The tax rate applied to the next additional increment of a taxpayer's taxable income (or deductions)

What is the general purpose of a tax?

To fund the operations of the government