Chapter 12 Cengage

In a ______________________ tax system, high-income taxpayers pay a larger fraction of their incomes than low-income taxpayers. a. Progressive b. Proportional c. Regressive

a. Progressive

The government wants to finance public housing for low-income families. Despite protests from wealthy homeowners, the government decides to use revenues from a tax on luxury homes (homes with a value exceeding $1 million) to finance this housing project. What principle does this tax policy follow? a. The ability-to-pay principle b. The benefits principle c. Both the ability-to-pay principle and the benefits principle d. Neither the ability-to-pay principle nor the benefits principle

a. The ability-to-pay principle

In a ______________________ tax system, high-income taxpayers pay a smaller fraction of their incomes than low-income taxpayers. a. Progressive b. Proportional c. Regressive

c. Regressive

______________________ transfer tax revenue from taxpayers to the recently unemployed. a. Social Security b. Transfer Payment Programs c. Unemployment Benefits

c. Unemployment Benefits

Kenji is getting ready to do his taxes. He is single and lives in San Diego. Kenji earned $200,000 in 2011. He reviews the following table, which shows the IRS tax rates for a single taxpayer in 2011. Based on the IRS table, Kenji calculates that he owes _______________ in income taxes for 2011 a. $42,449 b. $46,997 c. $50,047 d. $50,897 e. $66,000

d. $50,897 For each dollar earned, there is a marginal cost. For every dollar made before taxes up to $8,500, 10% is taken away in taxes. For every dollar more than $8500 but less than $34,500, 15% is taken away in taxes. For every dollar more than $34,500 but less than $83,600, 25% is taken away in taxes. For every dollar more than $83,600 but less than $174,400, 28% is taken away in taxes For every dollar more than $174,400 but less than $379,150, 33% is taken away in taxes For every dollar made before taxes that is more than $379,150, 35% is taken away in taxes. Because Kenji makes $200,000 dollars before taxes he will pay: 10% on the first $8,500 ($8,500 - $0 = $8,500) 15% on the next $26,000 ($34,500 - $8,500 = $26,000) 25% on the next $49,100 ($83,600 - $34,500 = $49,100) 28% on the next $90,800 ($174,400 - $83,600 = $90,800) And 33% on the final $25,600 he makes ($200,000 - $174,400 = $25,600) So, for the first $8,500 Kenji makes before taxes, he will make $7,650 after taxes. ($8,500 - [$8,500 × 0.1] = $7,650) For the next $26,000 Kenji makes before taxes, he will make $22,100 after taxes ($26,000 - [$26,000 × 0.15] = $22,100) For the next $49,100 Kenji makes before taxes, he will make $36,825 after taxes ($49,100 - [$49,100 × 0.25] = $36,825) For the next $90,800 Kenji makes before taxes, he will make $65,376 after taxes ($90,800 - [$90,800 × 0.28] = $65,376) For the final $25,600 Kenji makes before taxes, he will make $17,152 after taxes ($25,600 - [$25,600 × 0.33] = $17,152) Therefore, Kenji is making a total of $149,103 after taxes. ($7,650 + $22,100 + $36,825 + $65,376 + $17,152 = $149,103) And finally, because the rest of the $200,000 he made before taxes is collected by the IRS, the IRS will collect $50,897 ($200,000 - $149,103 = $50,897)

Kenji is getting ready to do his taxes. He is single and lives in San Diego. Kenji earned $200,000 in 2011. He reviews the following table, which shows the IRS tax rates for a single taxpayer in 2011. After figuring out what he owes in taxes in 2011, Kenji decides to ask an accountant for tax advice. The accountant claims that he has found a legal way to shelter $2,000 of taxable income from the federal government. The maximum amount that Kenji is willing to pay to learn this strategy and reduce his taxable income by $2,000 is _______________. a. $0 b. $500 c. $660 d. $2,000

$660 First, find out if Kenji will be changing his marginal tax rate by reducing his income by $2,000. He will not. ($200,000 - $2,000 = $198,000) ($198,000 > $174,400) By sheltering $2,000 from the government, Kenji will be avoiding paying the government $660 ($2,000 × 0.33 = $660) Kenji is logical, and therefore will not pay more than the amount of money he would save to employ the accountant. Therefore, the maximum amount of money Kenji would pay the accountant is $660.

In a hypothetical economy, Sam earns $15,000, Teresa earns $30,000, and Andrew earns $45,000 in annual income. The following table shows the annual taxable income and tax liability for these three single individuals. For example, Sam, who earns $15,000, owes $3,150 in taxes. Use the tax liability figures provided to complete the following table by computing the average tax rate for Sam, Teresa, and Andrew with an annual income of $15,000, $30,000, and $45,000, respectively What is Sam's Average Tax Rate?

21% Amount of Taxable Income = M Total Tax Paid or Tax Liability = T Average Tax Rate = A A = T / M $3,150 / $15,000 = 0.21 0.21 × 100 = 21%

In a hypothetical economy, Sam earns $15,000, Teresa earns $30,000, and Andrew earns $45,000 in annual income. The following table shows the annual taxable income and tax liability for these three single individuals. For example, Sam, who earns $15,000, owes $3,150 in taxes. Use the tax liability figures provided to complete the following table by computing the average tax rate for Sam, Teresa, and Andrew with an annual income of $15,000, $30,000, and $45,000, respectively What is Sam's Average Tax Rate?

21% Amount of Taxable Income = M Total Tax Paid or Tax Liability = T Average Tax Rate = A A = T / M $6,300 / $30,000 = 0.21 0.21 × 100 = 21%

In a hypothetical economy, Sam earns $15,000, Teresa earns $30,000, and Andrew earns $45,000 in annual income. The following table shows the annual taxable income and tax liability for these three single individuals. For example, Sam, who earns $15,000, owes $3,150 in taxes. Use the tax liability figures provided to complete the following table by computing the average tax rate for Sam, Teresa, and Andrew with an annual income of $15,000, $30,000, and $45,000, respectively What is Sam's Average Tax Rate?

21% Amount of Taxable Income = M Total Tax Paid or Tax Liability = T Average Tax Rate = A A = T / M $9,450 / $45,000 = 0.21 0.21 × 100 = 21%

______________________ is a program that collects revenue through a payroll tax (a tax on labor income) and distributes it to retirees. Social Security, therefore, transfers income from current workers to current retirees. a. Social Security b. Transfer Payment Programs c. Unemployment Benefits

a. Social Security

When the total receipts of the government fall short of total spending, the government is said to run a budget______________. a. deficit b. surplus

a. deficit

Kenji is getting ready to do his taxes. He is single and lives in San Diego. Kenji earned $200,000 in 2011. He reviews the following table, which shows the IRS tax rates for a single taxpayer in 2011. Based on the IRS table, Kenji calculates that his average tax rate for 2011 is _______________. a. 22% b. 25% c. 27% d. 30% e. 33%

b. 25% Amount of Taxable Income = M Total Tax Paid or Tax Liability = T Average Tax Rate = A A = T / M The Total Tax Paid = $50,897 The Amount of Taxable Income = $200,000 $50,897 / $200,000 = 0.254485, which is closest to 25%

In a ______________________ tax system, all taxpayers pay the same proportion of their incomes as taxes. a. Progressive b. Proportional c. Regressive

b. Proportional

What does the principle of horizontal equity state? a. Taxpayers with a lesser ability to pay taxes should pay larger amounts. b. Taxpayers with a similar ability to pay taxes should pay the same amount. c. People should pay taxes based on the benefits they receive from government services. d. Taxpayers with a greater ability to pay taxes should pay larger amounts.

b. Taxpayers with a similar ability to pay taxes should pay the same amount.

Under ______________________ the government pays individuals directly rather than offering them goods or services. Many government programs use transfer payments as a means of distributing wealth. The recipients of transfers do not provide goods or services in exchange for payments—a characteristic that distinguishes transfer payments from other government payments. a. Social Security b. Transfer Payment Programs c. Unemployment Benefits

b. Transfer Payment Programs

Government spending on interest payments and education involve an exchange of dollars for goods or services—such as loans or educational software. Therefore, these programs _______________ use transfer payments. a. do b. do not

b. do not

When the total receipts of the government exceed total spending, the government is said to run a budget______________. a. deficit b. surplus

b. surplus

The ______________________ is the rate at which, given current consumption, each additional dollar spent is taxed. a. Consumption Level b. Average Tax Rate c. Marginal Tax Rate

c. Marginal Tax Rate

What does the benefits principle state? a. Taxpayers with a lesser ability to pay taxes should pay larger amounts. b. Taxpayers with a similar ability to pay taxes should pay the same amount. c. People should pay taxes based on the benefits they receive from government services. d. Taxpayers with a greater ability to pay taxes should pay larger amounts.

c. People should pay taxes based on the benefits they receive from government services.

What does the principle of vertical equity state? a. Taxpayers with a lesser ability to pay taxes should pay larger amounts. b. Taxpayers with a similar ability to pay taxes should pay the same amount. c. People should pay taxes based on the benefits they receive from government services. d. Taxpayers with a greater ability to pay taxes should pay larger amounts.

d. Taxpayers with a greater ability to pay taxes should pay larger amounts.

Kenji is getting ready to do his taxes. He is single and lives in San Diego. Kenji earned $200,000 in 2011. He reviews the following table, which shows the IRS tax rates for a single taxpayer in 2011. Based on the IRS table, Kenji calculates that his marginal tax rate is _______________ Correct when his annual income is $200,000. a. 10% b. 15% c. 25% d. 28% e. 33% f. 35%

e. 33%

Which of the following are collected by both the State and/or local government and the federal government? • Corporate Income Taxes • Federal Government Funds • Property Taxes • Individual Income Taxes • Sales Tax • Social Insurance Taxes

• Corporate Income Taxes • Individual Income Taxes

Which of the following governments or expenditure programs do not include transfer payments? • Defense spending • Education spending • Interest payments on government debt • Social Security • Unemployment benefits • Welfare (TANF)

• Defense spending • Interest payments on government debt • Education spending

Which of the following are collected by only the federal government? • Corporate Income Taxes • Federal Government Funds • Property Taxes • Individual Income Taxes • Sales Tax • Social Insurance Taxes

• Federal Government Funds • Property Taxes • Sales Tax

Which of the following receive there revenue from the state and/or local government? • Libraries • Medicare • National Defense • Non-interstate highways • Police • Primary Education • Social Security

• Libraries • Non-interstate highways • Police • Primary Education

Which of the following receive there revenue from the federal government? • Libraries • Medicare • National Defense • Non-interstate highways • Police • Primary Education • Social Security

• Medicare • National Defense • Social Security

Which of the following are collected by only the State and/or local government? • Corporate Income Taxes • Federal Government Funds • Property Taxes • Individual Income Taxes • Sales Tax • Social Insurance Taxes

• Social Insurance Taxes

Which of the following governments or expenditure programs include transfer payments? • Defense spending • Education spending • Interest payments on government debt • Social Security • Unemployment benefits • Welfare (TANF)

• Social Security • Unemployment benefits • Welfare (TANF)