Deck 12: The Design of the Tax System

Question 1

The government raises revenue through taxation to pay for the services it provides.

Answer 1

True

Question 2

A budget surplus occurs when government receipts fall short of government spending.

Answer 2

False

Question 3

Individual income taxes generate roughly 25% of the tax revenue for the federal government.

Answer 3

False

Question 4

A budget surplus occurs when government receipts exceed government spending.

Question 5

In the United States, all families pay the same proportion of their income in taxes.

Question 6

Corporate income taxes are based on the amount of revenue a corporation earns.

Question 7

An excise tax is a tax on a specific good, like gasoline.

Question 8

A payroll tax is also referred to as a social insurance tax.

Question 9

The largest category of federal spending is national defense.

Question 10

The U.S. federal government collects about one-half of the taxes in our economy.

Question 11

Government spending is projected to rise over the next few decades. Three of the most important reasons are spending on Social Security, Medicare, and healthcare.

Question 12

A budget deficit occurs when government receipts fall short of government spending.

Question 13

The average American pays a higher percent of his income in taxes today than he would have in the late 18th century.

Question 14

Social Security is an income support program, designed primarily to maintain the living standards of the poor.

Question 15

A budget deficit occurs when government receipts exceed government spending.

Question 16

A family's tax liability is the amount of money it owes in taxes.

Question 17

Revenues from social insurance taxes are earmarked to pay for Social Security and Medicare.

Question 18

The U.S. tax burden is high compared to many European countries..

Question 19

One reason for the projected increase, over the next several decades, in government spending as a percentage of GDP is the projected increase in the size of the elderly population.

Question 20

Individual income taxes and social insurance taxes generate the highest tax revenue for the federal government.

Question 21

The administrative burden of complying with tax laws is a cost to the government but not to taxpayers.

Question 22

One characteristic of an efficient tax system is that it minimizes the costs associated with revenue collection.

Question 23

Tax evasion is legal, but tax avoidance is illegal.

Question 24

Income taxes and property taxes generate the highest tax revenue for state and local governments.

Question 25

Resources devoted to complying with the tax laws are a type of deadweight loss.

Question 26

The equity of a tax system concerns whether the tax burden is distributed equally among the population.

Question 27

In practice, the U.S. income tax system is filled with special provisions that alter a family's tax based on its specific circumstances.

Question 28

Sales taxes generate nearly 50% of the tax revenue for state and local governments.

Question 29

Deadweight losses arise because a tax causes some individuals to change their behavior.

Question 30

In 2014, the largest source of receipts for state and local governments was corporate income taxes.

Question 31

By law, all states must have a state income tax.

Question 32

Some states do not have a state income tax.

Question 33

European countries tend to rely more on consumption taxes than does the United States.

Question 34

The administrative burden of any tax system is part of the inefficiency it creates.

Question 35

In 2011, state and local government education spending was more than five times highway spending.

Question 36

An advantage of a consumption tax is that it does not distort the incentive to save.

Question 37

Tax evasion is illegal, but tax avoidance is legal.

Question 38

If a tax generates a reduction in surplus that is exactly offset by the tax revenue collected by the government, the tax does not have a deadweight loss.

Question 39

An efficient tax system is one that imposes small deadweight losses and small administrative burdens.

Question 40

In 2014, the largest source of receipts for state and local governments was individual income taxes.

Question 41

If Christopher earns $80,000 in taxable income and pays $20,000 in taxes, his average tax rate is 20 percent.

Question 42

If James earns $80,000 in taxable income and pays $20,000 in taxes, his average tax rate is 25 percent.

Question 43

According to the ability-to-pay principle, it is fair for people to pay taxes based on their ability to handle the financial burden.

Question 44

The marginal tax rate serves as a measure of the extent to which the tax system discourages people from working.

Question 45

When the total surplus lost as a result of a tax is less than the amount of tax revenue collected by the government there is a deadweight loss.

Question 46

Most economists believe that a corporate income tax affects the stockholders of a corporation but not its employees or customers.

Question 47

If Mary earns $80,000 in taxable income and pays $40,000 in taxes, her marginal tax rate must be 50 percent.

Question 48

If all taxpayers pay the same percentage of income in taxes, the tax system is progressive.

Question 49

Lump-sum taxes are equitable but not efficient.

Question 50

A lump-sum tax minimizes deadweight loss.

Question 51

A lump-sum tax would take different amounts from the poor and the rich.

Question 52

Deadweight losses and administrative burdens are key factors considered when determining the efficiency of the tax system.

Question 53

If all taxpayers pay the same percentage of income in taxes, the tax system is proportional.

Question 54

According to the ability-to-pay principle, it is fair for people to pay taxes based on the amount of government services that they receive.

Question 55

Antipoverty programs funded by taxes on the wealthy are sometimes advocated on the basis of the benefits principle.

Question 56

According to the benefits principle, it is fair for people to pay taxes based on the benefits they receive from the government.

Question 57

Many people consider lump-sum taxes to be unfair to low-income taxpayers.

Question 58

Vertical equity refers to a tax system in which individuals with similar incomes pay similar taxes.

Question 59

According to the benefits principle, it is fair for people to pay taxes based on their ability to shoulder the tax burden.

Question 60

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

Question 61

Of the following countries, which country's government collects the largest amount of tax revenue as a percentage of that country's total income?

A)Denmark
B)United States
C)Canada
D)Greece

Question 62

Which of the following is true about the percent of total income all levels of government in the U.S. take as taxes?

A)In 1902 the government collected about 7 percent of total income. In recent years, it collected about 30 percent of total income.
B)In 1902 the government collected about 30 percent of total income. In recent years, it collected about 7 percent of total income.
C)In 1902 the government collected about 7 percent of total income. In recent years, it collected about 7 percent of total income.
D)In 1902 the government collected about 30 percent of total income. In recent years, it collected about 30 percent of total income.

Question 63

Vertical equity is not consistent with a regressive tax structure.

Question 64

​A lump-sum tax does not produce a deadweight loss.

Question 65

​Rob's income rises from $50,000 to $60,000 and his income tax increases from $6,000 to $7,500.His marginal tax rate is 12.5%.

Question 66

​Karole's income rises from $50,000 to $75,000 and her income tax increases from $8,000 to $9,500.Her average tax rate is 6%.

Question 67

​Sonja paid $15,000 in taxes after having earned $100,000. Amanda paid $22,000 in taxes after having earned an income of $146,667.This is an example of a proportional tax.

Question 68

A tax system exhibits vertical equity when taxpayers with similar abilities to pay contribute the same amount.

Question 69

​A city finances a performing arts center by adding a $2.75 tax to each ticket sold.This is an example of taxation via the benefits principle.

Question 70

Which of the following countries has the largest tax burden?

A)Mexico
B)Canada
C)United States
D)Denmark

Question 71

A lump sum tax can never have horizontal equity.

Question 72

Horizontal and vertical equity are the two primary measures of efficiency of a tax system.

Question 73

Vertical and horizontal equity are widely accepted and applying them to evaluate a tax system is always straightforward.

Question 74

Over the past 100 years, as the U.S. economy's income has grown,

A)tax rates have decreased, while tax revenues have increased.
B)tax rates have increased, while tax revenues have decreased.
C)both tax rates and tax revenues have increased.
D)both tax rates and tax revenues have decreased.

Question 75

Horizontal equity can be difficult to assess because it is difficult to compare the similarity of tax payers.

Question 76

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

Question 77

Horizontal equity refers to a tax system in which individuals with similar incomes pay similar taxes.

Question 78

Economics alone cannot determine the best way to balance the goals of efficiency and equity.

Question 79

To fully understand the progressivity of government policies, one should only look at the proportion of total income that individuals pay in taxes each year.

Question 80

If the rich pay more in taxes than the poor, the tax system must be progressive.