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Exam 12: The Design of the Tax System

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Question 111

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Table 12-7 The following table shows the marginal tax rates for unmarried individuals for two years. -Refer to Table 12-7. For an individual who earned $80,000 in both years, which of the following statements is true regarding the individual's marginal tax rate?

A) The marginal tax rate is higher in 2010 than in 2009.
B) The marginal tax rate is the same in 2010 as it was in 2009.
C) The marginal tax rate is lower in 2010 than in 2009.
D) With a proportional tax, as in 2010, it is not possible to determine the individual's marginal tax rate so it is not possible to compare the marginal tax rates in the two years.

E) None of the above
F) B) and C)

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Question 112

Multiple Choice

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Federal government spending on Social Security, Medicare, and Medicaid as a percentage of GDP rose from

A) 10 percent in 1950 to more than 50 percent today.
B) 10 percent in 1950 to more than 20 percent today.
C) 1 percent in 1950 to more than 10 percent today.
D) 1 percent in 1950 to more than 20 percent today.

E) A) and B)
F) A) and D)

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Question 113

Multiple Choice

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In 2010, the co-chairmen of President Obama's deficit reduction commission proposed curtailing or eliminating many tax deductions such as the one for mortgage interest. Economists who favor the proposal argue that it would (i) correct a misallocation of resources because too much of the economy's capital stock is tied up in residential housing and too little is invested in corporate capital. (ii) cut both spending and taxes. (iii) encourage private philanthropy.

Tax evasion is legal, but tax avoidance is illegal.

If your income is $50,000, your income tax liability is $10,000, and you paid $0.25 in taxes on the last dollar you earned, your

You are trying to design a tax system that will simultaneously achieve both of the following goals: 1) two people with the same total income would pay taxes of the same amount, and 2) a high-income person would pay a higher fraction of income in taxes than a low-income person. Which of the following tax systems could achieve both goals?

The claim that all citizens should make an "equal sacrifice" to support government programs is usually associated with

Table 12-21 The dollar amounts in the last three columns are the taxes owed under the three different tax systems. -Refer to Table 12-21. Which of the three tax systems is proportional?

Briefly describe why some economists prefer a value-added tax (VAT) to an income tax.

Table 12-9 United States Income Tax Rates for a Single Individual, 2012 and 2013. -Refer to Table 12-9. Ruby Sue is a single person whose taxable income is $100,000 a year. What happened to her marginal tax rate between 2012 and 2013?

In many cases, tax loopholes are designed by Congress to

Vertical equity refers to a tax system in which individuals with higher incomes pay more in taxes than individuals with lower incomes.

The principle that people should pay taxes based on the benefits they receive from government services is called the

Sue earns income of $80,000 per year. Her average tax rate is 30 percent. Sue paid 20 percent in taxes on the first $30,000 she earned. What was the marginal tax rate on the rest of her income?

Which of the following tax systems could not be structured to satisfy conditions of vertical equity?

​Which of the following is an example of horizontal equity?

The tax that generates the most revenue for state and local government is the

The most efficient tax possible is a

Time spent filling out tax forms, time spent keeping tax records, and government resources spent to enforce tax laws are examples of the __________ of the U.S. income tax system.

Table 12-18 United States Income Tax Rates for a Single Individual, 2009 and 2010. -Refer to Table 12-18. What type of tax structure did the United States have in 2009 for single individuals?