Economics Chapter 6
What is the structure of the U.S. income tax system?
The U.S. income tax system is a progressive tax system where the marginal tax rate exceeds the average tax rate.
Which of the following explains the difference between the average tax rate and the marginal tax rate?
The average tax rate uses total income while the marginal tax rate refers to the tax rate of the last dollar earned.
tax base
value of goods, services, wealth, or incomes subject to taxation
Corporate income taxes account for
11.5 percent of all federal taxes collected and make up about 2 percent of all state and local taxes collected
Suppose that you pay $100,000 for a financial asset in one year and sell it for 25 percent more 10 years later. If during those 10 years inflation had driven average asset prices up by 20 percent, your real capital gain would be
5,000, taxes on $25,000
tax bracket
A specified interval of income to which a specific and unique marginal tax rate is applied
progressive taxation
A tax system in which, as income increases, a higher percentage of the income is paid as taxes
The maximum sales tax rates for selected states, including county and municipal taxes, occur in
Arkansas, Louisiana, and Arizona
government budget constraint.
The limit on government spending and transfers imposed by the fact that every dollar the government spends, transfers, or uses to repay borrowed funds must ultimately be provided by the user charges and taxes it collects
Dynamic tax analysis shows that a likely response to an increase in a tax rate is
a decrease in the tax base
Assessing taxes by charging a tax rate equal to a fraction of the market price of each unit purchased is known as
ad valorem taxation
static tax-relationship between tax rates and tax revenues implies that higher tax rates always generate increased government tax collections.
analysis that changes in the tax rate have no effect on the tax base
marginal tax rate
change in taxes due/change in taxable income
If an analyst has concluded that tax revenues may eventually decline if the tax rate is raised sufficiently, this analyst is using
dynamic tax analysis
Which of the following is the most important source of revenue for the federal budget?
federal personal income tax
The fundamental limitation on public expenditures during a specific time interval is expressed by
government budget constraints
tax rate
is the proportion of the tax base that must be paid to the government as taxes
regressive tax
more dollars are earned, the percentage of tax paid on them falls
A tax where people with lower incomes pay a higher percentage of their income in tax than do people with higher incomes is called a How is the federal income tax structured?
regressive tax The rate at which income is taxed increases as income increases. Up to a limit, additional amounts of income are taxed at ever greater rates.
Employers match employees' contributions for
social security taxes
key taxes at the state and local level do not include
social security taxes
Suppose that a state government implements a tax on mechanics' labor time at all state auto repair shops in order to enhance its tax revenues. One year later the government is disappointed to find that not only is the amount of tax collected small, but that in-state auto repair work significantly declined. This state government apparently utilized which type of tax analysis?
static tax analysis
Which of the following is not a source of funding available to governments?
stock sales
The federal corporate income tax structure results in double taxation because
stockholders pay taxes on dividends that were already taxed as profits of the corporation.
A proportional tax, or flat-rate tax
takes the same percentage of a person's taxable income in tax regardless of their level of income.
The distribution of tax burdens among various groups in society is known as
tax incidence
Over the long run any government's fundamental revenue sources are
taxes and user charges
average tax rate
total taxes due/total taxable income
