Question 1

Scenario 12-5
Senator Filch argues that a tax must be paid by people who benefit from government services. Senator Fudge argues that a tax must be paid in accordance with a person's ability to bear the tax burden. Senator Malfoy argues that people with a greater ability to pay a tax should pay a larger amount. Senator Moody argues that taxpayers with similar abilities to pay should contribute the same amount.
-Refer to Scenario 12-5. Which Senator is advocating taxes based on the benefits principle?
A)Senator Filch
B)Senator Fudge
C)Senator Malfoy
D)Senator Moody

Accepted Answer

Senator Filch argues for the benefits principle, which states that taxes should be paid by those who benefit from government services.

Question 2

Table 12-13
The table below provides information on the 4 households that make up a small economy and how much they would pay in taxes under 3 types of taxes. 
-Refer to Table 12-13. In this economy Tax B exhibits
A)horizontal and vertical equity.
B)horizontal equity but not vertical equity.
C)vertical equity but not horizontal equity.
D)neither horizontal nor vertical equity.

Accepted Answer

The answer of Table 12-13
The table below provides information on...

Question 3

Which of the following tax systems could not be structured to satisfy conditions of vertical equity?
A)a proportional tax
B)a regressive tax
C)a progressive tax
D)a lump-sum tax

Accepted Answer

The answer of Which of the following tax systems could...

Question 4

In order to determine tax incidence, one must
A)consider issues of equity.
B)also determine the legal liability of the tax.
C)evaluate where the tax burden eventually falls.
D)use the "flypaper theory" of taxation.

Accepted Answer

Tax incidence refers to the distribution of the tax burden between buyers and sellers, and it is determined by evaluating where the tax burden eventually falls. Tax incidence analysis also helps to understand the impact of taxes on different stakeholders and whether the tax is equitable or not. Therefore, option C is the correct answer. Options A and B are also important considerations when designing tax policy but are not directly related to tax incidence analysis. The flypaper theory of taxation (option D) suggests that taxes stick where they first hit, which is a controversial idea and is not widely accepted by economists.

Question 5

Table 12-13
The table below provides information on the 4 households that make up a small economy and how much they would pay in taxes under 3 types of taxes. 
-Refer to Table 12-13. In this economy Tax A exhibits
A)horizontal and vertical equity.
B)horizontal equity but not vertical equity.
C)vertical equity but not horizontal equity.
D)neither horizontal nor vertical equity.

Accepted Answer

Tax A exhibits only horizontal equity because everyone pays the same amount regardless of their income level, but does not exhibit vertical equity because those with lower incomes are not paying a lower percentage of their income in taxes.

Question 6

Table 12-13
The table below provides information on the 4 households that make up a small economy and how much they would pay in taxes under 3 types of taxes. 
-Refer to Table 12-13. In this economy Tax C exhibits
A)horizontal and vertical equity.
B)horizontal equity but not vertical equity.
C)vertical equity but not horizontal equity.
D)neither horizontal nor vertical equity.

Accepted Answer

Tax C exhibits vertical equity because those with higher incomes pay a higher percentage of their income in taxes. However, it does not exhibit horizontal equity because households with similar incomes may be taxed differently.

Question 7

Which of the following statements is not correct?
A)A gasoline tax can be an example of a tax that uses the benefits principle.
B)A progressive tax attempts to achieve vertical equity.
C)A progressive tax can be an example of the ability-to-pay principle.
D)A regressive tax attempts to achieve vertical equity.

Accepted Answer

A regressive tax is a tax where the tax rate decreases as the taxable amount increases, meaning that low-income taxpayers pay a higher percentage of their income in taxes than high-income taxpayers. This does not achieve vertical equity, as it is the opposite of a progressive tax, which attempts to achieve vertical equity by having higher tax rates applied to those with higher incomes.

Question 8

Scenario 12-5
Senator Filch argues that a tax must be paid by people who benefit from government services. Senator Fudge argues that a tax must be paid in accordance with a person's ability to bear the tax burden. Senator Malfoy argues that people with a greater ability to pay a tax should pay a larger amount. Senator Moody argues that taxpayers with similar abilities to pay should contribute the same amount.
-Refer to Scenario 12-5. Which Senator is advocating taxes based on a person's ability to pay?
A)Senator Filch only
B)Senator Moody only
C)Senators Fudge and Malfoy only
D)Senators Malfoy and Moody only

Accepted Answer

The answer of Scenario 12-5
Senator Filch argues that a tax...

Question 9

A tax that is higher for men than for women violates the criterion of
A)horizontal equity.
B)vertical equity.
C)the ability-to-pay principle.
D)the marriage tax.

Accepted Answer

The criterion of horizontal equity states that individuals in similar situations should be treated equally. Charging a higher tax rate for men than for women solely based on their gender violates this principle.

Question 10

In the 1980s, President Ronald Reagan argued that high tax rates distorted economic incentives to work and save. In the 1990s, President Bill Clinton argued that the rich were not paying their fair share of taxes. Which of the following statements best summarizes the economic theories behind the differing philosophies?
A)President Reagan was concerned about vertical equity, whereas President Clinton was concerned about horizontal equity.
B)President Reagan was concerned about average tax rates, whereas President Clinton was concerned about horizontal equity.
C)President Reagan was concerned about marginal tax rates, whereas President Clinton was concerned about vertical equity.
D)None of the above is correct.

Accepted Answer

President Reagan's argument about distorted economic incentives to work and save was based on the economic theory that high marginal tax rates create a disincentive to work and save more. President Clinton's argument about the rich not paying their fair share of taxes was based on the principle of vertical equity, that those who earn more should contribute a higher proportion of their income in taxes to support the society. Therefore, the correct statement is "President Reagan was concerned about marginal tax rates, whereas President Clinton was concerned about vertical equity."

Question 11

Vertical equity states that taxpayers with a greater ability to pay taxes should
A)contribute a decreasing proportion of each increment in income to taxes.
B)contribute a larger amount than those with a lesser ability to pay.
C)be less subject to administrative burdens of a tax.
D)be less subject to tax distortions that lead to deadweight losses.

Accepted Answer

Vertical equity means that taxpayers with a greater ability to pay taxes should contribute a larger amount than those with a lesser ability to pay. This is because those who have more income or wealth have the ability to contribute a larger amount toward taxes without experiencing significant harm or hardship.

Question 12

The idea that people in equal conditions should pay equal taxes is referred to as
A)horizontal equity.
B)vertical equity.
C)the ability-to-pay principle.
D)the marriage tax.

Accepted Answer

The concept of people in equal conditions paying equal taxes relates to horizontal equity. It means that individuals or entities with similar circumstances, such as income or wealth, should pay the same amount in taxes as others in the same situation.

Question 13

In which of the following tax systems do taxes increase as income increases?
A)both proportional and progressive
B)proportional but not progressive
C)progressive but not proportional
D)neither proportional nor progressive

Accepted Answer

The answer of In which of the following tax systems...

Question 14

The notion that similar taxpayers should pay similar amounts of taxes is known as
A)vertical equity.
B)the benefits principle.
C)horizontal equity.
D)taxpayer efficiency.

Accepted Answer

Horizontal equity refers to the idea that taxpayers in similar situations should pay similar amounts of taxes. This principle is based on the notion of fairness and equality in the taxation system. Vertical equity, on the other hand, refers to the idea that taxpayers with higher incomes should pay higher taxes, while the benefits principle suggests that taxpayers should pay taxes based on the benefits they receive from government services. Taxpayer efficiency does not relate to the principle of equity in taxation.

Question 15

Two families who live in Plains, GA have identical incomes. The Smiths deduct $5,000 from their taxable income for mortgage interest paid during the year. The Jones family lives in an apartment and is not eligible for a mortgage-interest deduction. This situation exemplifies
A)an application of the benefits principle of taxation.
B)a violation of horizontal equity.
C)a violation of vertical equity.
D)an application of egalitarian tax rules.

Accepted Answer

The situation exemplifies a violation of horizontal equity because two families with equal incomes are treated differently based on their housing situation, with the family who owns a house receiving a tax deduction that the family living in an apartment cannot get. Horizontal equity dictates that people in similar situations should be taxed similarly, but in this case, that is not happening.

Question 16

Vertical equity in taxation refers to the idea that people
A)in unequal conditions should be treated differently.
B)in equal conditions should pay equal taxes.
C)should pay taxes based on the benefits they receive from the government.
D)should pay a proportional tax rather than a progressive tax.

Accepted Answer

The answer of Vertical equity in taxation refers to the...

Question 17

Tax incidence refers to
A)what product or service the tax is levied on.
B)who bears the tax burden.
C)what sector of the economy is most affected by the tax.
D)the dollar value of the tax revenues.

Accepted Answer

Tax incidence refers to who bears the burden of the tax, whether it is the producer or the consumer. It is not about the product or service being taxed, the sector of the economy affected by the tax, or the dollar value of the tax revenues.

Question 18

One of the most difficult issues associated with trying to structure a tax policy to satisfy horizontal equity is determining
A)whether or not a taxpayer falls within the highest income quintile.
B)the level of transfer payments made to low-income groups.
C)the source of income for taxpayers.
D)what differences are relevant to a family's ability to pay.

Accepted Answer

Horizontal equity requires that taxpayers with similar ability to pay should have similar tax burdens. Therefore, the most difficult issue is determining what differences are relevant to a family's ability to pay. This requires considering factors such as income, family size, and expenses, among others.

Question 19

Horizontal equity in taxation refers to the idea that people
A)in unequal conditions should be treated differently.
B)in equal conditions should pay equal taxes.
C)should be taxed according to their ability to pay.
D)should receive government benefits according to how much they have been taxed.

Accepted Answer

Horizontal equity in taxation states that people in equal conditions should be treated equally in terms of taxes they pay. This means that individuals with the same income and wealth should pay the same amount of taxes regardless of other factors such as race, gender, or occupation.

Question 20

Scenario 12-5
Senator Filch argues that a tax must be paid by people who benefit from government services. Senator Fudge argues that a tax must be paid in accordance with a person's ability to bear the tax burden. Senator Malfoy argues that people with a greater ability to pay a tax should pay a larger amount. Senator Moody argues that taxpayers with similar abilities to pay should contribute the same amount.
-Refer to Scenario 12-5. Which Senator is advocating for taxes based on horizontal equity?
A)Senator Filch
B)Senator Fudge
C)Senator Malfoy
D)Senator Moody

Accepted Answer

The answer of Scenario 12-5
Senator Filch argues that a tax...

Quiz 12: The Design of the Tax System

Table 12-13 The table below provides information on the 4 households that make up a small economy and how much they would pay in taxes under 3 types of taxes. -Refer to Table 12-13. In this economy Tax B exhibits

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

In order to determine tax incidence, one must

Table 12-13 The table below provides information on the 4 households that make up a small economy and how much they would pay in taxes under 3 types of taxes. -Refer to Table 12-13. In this economy Tax A exhibits

Table 12-13 The table below provides information on the 4 households that make up a small economy and how much they would pay in taxes under 3 types of taxes. -Refer to Table 12-13. In this economy Tax C exhibits

Which of the following statements is not correct?

A tax that is higher for men than for women violates the criterion of

Vertical equity states that taxpayers with a greater ability to pay taxes should

The idea that people in equal conditions should pay equal taxes is referred to as

In which of the following tax systems do taxes increase as income increases?

The notion that similar taxpayers should pay similar amounts of taxes is known as

Two families who live in Plains, GA have identical incomes. The Smiths deduct $5,000 from their taxable income for mortgage interest paid during the year. The Jones family lives in an apartment and is not eligible for a mortgage-interest deduction. This situation exemplifies

Vertical equity in taxation refers to the idea that people

Tax incidence refers to

One of the most difficult issues associated with trying to structure a tax policy to satisfy horizontal equity is determining

Horizontal equity in taxation refers to the idea that people