ACC 3400 C-1 HW

Carmen has computed that her average tax rate is 16% and her marginal tax rate is 24% for the current year. She is considering whether to make a charitable contribution to her church before the end of the tax year. Which tax rate is of greater significance in measuring the tax effect for her decision?

The marginal tax rate is of greater significance in measuring the tax effect for Carmen's decision. The marginal tax rate is the percentage that is applied to an incremental amount of taxable income that is added to or subtracted from the tax base. Through the marginal tax rate, the tax payer may measure the tax effect of the charitable contribution to her church. If her marginal tax rate is 24% she will save 24 cents for each dollar contributed to her church. The average tax rate is simply the total tax liability divided by taxable income.

Indicate which of the following taxes are generally progressive, proportional, or regressive: a. state income taxes b. Federal estate tax c. Corporate state franchise tax d. property taxes e. state and local sales taxes

a. Progressive b. Progressive c. Proportional d. Proportional e. Proportional

Carolyn operates a consulting business as a sole proprietor( unincorporated). Carolyn has been approached by one of her major clients to become an employee. IF she accepts the new job, she would no longer operate her consulting business. From the standpoint of paying Social Security taxes increase or decrease if she becomes an employee? Why? ( Assume she will earn less than $200,000)

Decrease. When Carolyn operates her business as a sole proprietor, she is considered to be self-employed. A self-employment tax is imposed at the rate of 15.3% for 2018 (12.4%) OASDI + 2.9% Medicare) on all of her business income with a ceiling on the non-hospital insurance (OASDI) portion of the tax base of $128,400 in 2018. Carolyn is also entitled to an income tax deducution equal to 50% of the self-employment tax payments if she is self-employed. IF she works as an employee, however, the OASDI and Medicare taxes are imposed at the employee level at a rate of 7.65% for 2018. The OASDI is imposed on earned income up to a maximum of $128,400 in 2018 while Medicare taxes have no ceiling. Her employer would have to match Carolyn's OASDI and Medicare taxes.

The Governor of your state stated in a recent political speech that he has never supported any income tax increase as the tax rates have remained at the same level during his entire term of office. Yet, you believe that you are paying more tax this year than in previous years even though your income has not increased. How can both you and the governor be correct? In other words, is it possible for the government to raise taxes without raising tax rates?

It is possible for the government to raise taxes without raising tax rates. Because there are two components in computing a tax payer's tax, the tax base and the tax rate, taxes can be raised by increasing either the rate or the base. Thus, even though the Governor proclaimed that tax rates have remained at the same level, adjustments to the tax base, such as the elimination of deductions, result in tax increases which can be as much, or more, as increases in tax rates