Econ Chapter 19

True or false: The diagonal line in a Lorenz curve indicates that the top 20% of households earn 80 percent of the nation's income.

False

_______ marginal tax rates tend to reduce incentives.

Higher

As a teacher, Jonathan earns an annual income of $30,000, while Jose earns an annual income of $400,000 as an investment banker. On the one hand, low-income Jonathan spends all of his income on pure necessities of life and is unable to save. On the other hand, Jose spends $200,000 of his income and saves the balance. Suppose a 10 percent general sales tax applies to all the expenditures of Jonathan and Jose. We find that Jonathan pays $3,000 in sales taxes and Jose pays $20,000 in sales taxes. Which of the following are true of this scenario? Select all that apply.

Jose pays less in sales tax as a percentage of his income than does Jonathan. This sales tax is a regressive tax.

The __________ curve shows the percent of a nation's income that is earned by a given percent of the nation's households.

Lorenz

A graph that depicts the income distribution in a nation is the ______.

Lorenz curve

The following table gives tax and income data for three college friends: Tax Paid ($) Earning ($) Sam 250 1,250 Pam 350 1,400 Cam 500 2,500 According to this information, pays the highest average tax rate. (Insert a name.)

Pam

Which of the following were part of the Bush Tax Cuts? (Select all that apply.)

Reductions in marginal tax rates New loopholes

Which of the following are not characteristic of a regressive tax? Select all that apply.

The average rate increases as income increases. Such a tax claims not only a larger absolute amount but also a larger percentage of income as income increases.

Choose two reasons why part of the employer portion of the payroll tax gets shifted to workers.

The payroll tax makes it costly to hire workers, thus reducing the quantity demanded for labor. The market wage that employers pay their workers is reduced by all or some of the payroll tax.

Which one of the following helps explain why property taxes are regressive?

The poor spend a larger percentage of their incomes for housing than do high-income families.

True or false: Factor and product markets tend to be permissive of income inequality.

True

True or false: One way to analyze income distribution in a nation is to look at the percentage of households in various income brackets.

True

True or false: The "size distribution of income" tells us how large a share of total personal income is received by various households, grouped by income class.

True

The (marginal/average) tax rate is the total tax paid divided by total taxable income.

average

The degree to which a tax falls on a particular person or group is called the tax (rate/incidence).

incidence

The market system permits a high degree of income inequality because

it rewards people based on their contributions to society's output.

Part of the employer portion of payroll taxes gets shifted to workers in the form of ______.

lower before-tax wages

Employers have the ability to cover their portion of the Social Security payroll tax by paying

lower before-tax wages to their employees.

President Obama intended to reverse the Bush tax cuts by raising the _______ tax rates.

marginal

Progressive taxation is achieved by applying higher ______ tax rates.

marginal

The major component of the Obama tax hike was an increase in _____________ tax rates.

marginal

Wealth refers to the _____ value of assets (such as houses, cars, and bank accounts) that people own.

market

The government has been called upon to address an implicit _____, as evidenced by the increase in income inequality.

market failure

Dividing taxes paid by taxable income gives the _____ rate; dividing taxes paid by total (gross) income gives the _____ rate.

nominal, effective

A tax is (one word) if its average rate increases as income increases.

progressive

Most cities in the United States rely on _____ taxes as their primary revenue source.

property

After accounting for Social Security taxes, state and local taxes, and the federal income tax, the U.S. tax system as a whole is nearly _____.

proportional

When all things are considered, the U.S. tax system as a whole is nearly _____________.

proportional

In-kind income (or benefits) in the United States are ______.

received by individuals and households from across the income spectrum

A tax is ______________ if its average rate declines as income increases.

regressive

The combination of declining tax revenues and a constant average tax rate implies a(n) _____ tax base.

shrinking

Sales taxes are the primary source of revenue for ______.

state governments

The nominal tax rate is taxes paid divided by _______ income; the effective tax rate is taxes paid divided by _______ income.

taxable; total

Tax incidence refers to ______.

the actual burden of a tax—that is, who really ends up paying it

Redistributive tax goals refers to ______.

the redistribution of income in society so that the disparity between the rich and the poor is reduced

One main argument for income inequality is that ______.

there is a trade-off between equality and efficiency

Government completes the redistribution process by transferring income to consumers through which of the following? Select all that apply.

unemployment insurance Social Security payments welfare benefits

The principle that people with higher incomes should pay more tax is called ______.

vertical equity

The proliferation of exemptions and exemptions has _____ the principle of vertical equity.

weakened

The stock reflecting at a particular moment the financial and real assets a person has collected over time is called ____________ .

wealth

The amount of income or property directly subject to nominal tax rates is the tax _____________

base

The government completes the redistribution process by transferring income to (consumers/businesses).

consumers

The widely accepted claim that higher marginal tax rates reduces incentives and, hence, total output, suggests that the goals of equity (more progressive taxes) and efficiency (more output) are

in conflict.

Goods and services received directly, without payment in a market transaction are called:

in-kind

Suppose Henry paid total taxes of $120 on the $600 he earned last week on his job at the dining hall. Henry's average tax rate is _____________%. (Insert a number.)

20

Suppose Andy and Sandy are residents of a state with a proportional income tax. If Andy paid $2,250 in taxes on his $45,000 income, Sandy must be paying taxes of $____________ on her $80,000 income.

4,000

Reductions in marginal tax rates and the creation of new loopholes were part of the _____ tax policy.

Bush

Under President Trump, the top marginal tax rate _______.

decreased

Although the potential benefits of inequality are impressive, there is always a trade-off between _______ and equality.

efficiency

President Trump's motive for reducing business taxes was an increase in _______.

efficiency

The essence of the income equality versus inequality debate is the belief that there is a fundamental trade-off between equality and ______.

efficiency

Horizontal equity states that people with equal incomes should pay ______.

equal taxes

Critics of the Trump tax cut proposals expressed concerns primarily about the _____ implications of the cuts.

equity

The diagonal line in a Lorenz curve indicates a distribution of income where ______.

every household has the same income

Property taxes are regressive because the average tax rate

falls as taxable income rises.

If Frank and Hank both "knock down" $120K per year, yet Hank pays quite a bit more in taxes because he's got fewer deductions, the principle of _____ equity appears to be violated.

horizontal

The idea that people with equal incomes should pay equal taxes is called (horizontal/vertical) equity.

horizontal