Question 1

Sue earns income of $80,000 per year. Her average tax rate is 50 percent. Sue paid $5,000 in taxes on the first $30,000 she earned. What was the marginal tax rate on the first $30,000 she earned, and what was the marginal tax rate on the remaining $50,000?
A)6.25 percent and 50.00 percent, respectively
B)10.00 percent and 70.00 percent, respectively
C)16.67 percent and 60.00 percent, respectively
D)16.67 percent and 70.00 percent, respectively

Accepted Answer

Sue's total taxes paid = $80,000 * 50% = $40,000

Therefore, Sue paid $40,000 - $5,000 = $35,000 in taxes on the remaining $50,000 she earned.

Marginal tax rate on the first $30,000 = ($5,000 / $30,000) * 100% = 16.67%

Marginal tax rate on the remaining $50,000 = ($35,000 / $50,000) * 100% = 70.00%

Therefore, the correct answer is D) 16.67 percent and 70.00 percent, respectively.

Question 2

The average tax rate measures the
A)fraction of spending paid in taxes.
B)fraction of income paid in taxes.
C)incremental rate of tax on income.
D)average deadweight loss from all taxes.

Accepted Answer

The average tax rate measures the fraction of income paid in taxes, so option B is correct. Option A and D are incorrect because they are not true definitions of average tax rate. Option C is incorrect because it refers to marginal tax rate, not average tax rate.

Question 3

Suppose the government imposes a tax of 20 percent on the first $50,000 of income and 30 percent on all income above $50,000. What is the average tax rate when income is $60,000?
A)21.7 percent
B)25.0 percent
C)46.7 percent
D)50.0 percent

Accepted Answer

The answer of Suppose the government imposes a tax of...

Question 4

If we want to gauge the sacrifice made by a taxpayer, we should use the
A)average tax rate.
B)marginal tax rate.
C)lump-sum tax rate.
D)sales tax rate.

Accepted Answer

The average tax rate, which is the total tax paid divided by total income, best measures the sacrifice made by a taxpayer because it reflects the proportion of their income that is paid in taxes.

Question 5

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?
A)20 percent
B)24 percent
C)30 percent
D)36 percent

Accepted Answer

Since Sue's average tax rate is 30%, the marginal tax rate on the rest of her income must be higher than that. The marginal tax rate on the first $30,000 she earned was 20%, so the marginal tax rate on the remaining $50,000 ($80,000 - $30,000) must be higher than that to drive her overall average tax rate up to 30%. Using this reasoning, we can calculate that the marginal tax rate on the rest of her income is 36%.

Question 6

If we want to gauge how much the income tax system distorts incentives, we should use the
A)average tax rate.
B)ability-to-pay principle.
C)total tax revenue collected.
D)marginal tax rate.

Accepted Answer

The marginal tax rate is the rate at which additional income is taxed, and it is the best choice for gauging how much the income tax system distorts incentives because it shows how much individuals are penalized for earning more income. When a high marginal tax rate applies, individuals may be discouraged from working more, investing, or starting businesses since they will receive a smaller proportion of each additional dollar earned. Therefore, the higher the marginal tax rate, the greater the distortion of incentives.

Question 7

Bert faces a progressive tax structure that has the following marginal tax rates: 0 percent on the first $10,000, 10 percent on the next $10,000, 15 percent on the next $10,000, 25 percent on the next $10,000, and 50 percent on all additional income. If Bert earns $75,000, what is his average tax rate?
A)20 percent
B)25 percent
C)30 percent
D)36.67 percent

Accepted Answer

The answer of Bert faces a progressive tax structure that...

Question 8

If your income is $40,000 and your income tax liability is $5,000, your
A)marginal tax rate is 8 percent.
B)average tax rate is 8 percent.
C)marginal tax rate is 12.5 percent.
D)average tax rate is 12.5 percent.

Accepted Answer

The average tax rate is calculated by dividing the total tax liability ($5,000) by the taxable income ($40,000) which gives us 0.125 or 12.5%. Therefore, option D is correct. The marginal tax rate is the rate at which the next dollar of income would be taxed. We don't have enough information to calculate the marginal tax rate, so options A and C are incorrect.

Question 9

Suppose the government imposes a tax of 10 percent on the first $40,000 of income and 20 percent on all income above $40,000. What are the tax liability and the marginal tax rate for a person whose income is $30,000?
A)both are 10 percent
B)10 percent and $2,000, respectively
C)$3,000 and 10 percent, respectively
D)$3,000 and 20 percent, respectively

Accepted Answer

The answer of Suppose the government imposes a tax of...

Question 10

A person's tax obligation divided by her income is called her
A)marginal social tax rate.
B)marginal private tax rate.
C)marginal tax rate.
D)average tax rate.

Accepted Answer

The calculation described in the question is finding a person's average tax rate, which is the amount of tax paid per dollar of income earned. The marginal tax rate would refer to the tax rate paid on the last dollar earned, and the terms "social" and "private" do not accurately describe the calculation given.

Question 11

James earns income of $90,000 per year. His average tax rate is 40percent. James paid $5,500 in taxes on the first $40,000 he earned. What was the marginal tax rate on the rest of his income?
A)6.1 percent
B)44 percent
C)55 percent
D)61 percent

Accepted Answer

The answer of James earns income of $90,000 per year....

Question 12

Sue earns income of $80,000 per year. Her average tax rate is 40 percent. Sue paid $4,500 in taxes on the first $30,000 she earned. What was the marginal tax rate on the rest of her income?
A)15 percent
B)32 percent
C)40 percent
D)55 percent

Accepted Answer

The answer of Sue earns income of $80,000 per year....

Question 13

Suppose the government imposes a tax of 10 percent on the first $40,000 of income and 20 percent on all income above $40,000. What are the tax liability and the marginal tax rate for a person whose income is $50,000?
A)12 percent and 20 percent, respectively
B)12 percent and $50,000, respectively
C)$6,000 and 12 percent, respectively
D)$6,000 and 20 percent, respectively

Accepted Answer

For the first $40,000 of income, the tax liability is:
$40,000 x 0.1 = $4,000
For the remaining $10,000 of income, the tax liability is:
$10,000 x 0.2 = $2,000
Total tax liability is:
$4,000 + $2,000 = $6,000
The marginal tax rate is the tax rate on the last dollar of income. In this case, the marginal tax rate is 20 percent, since the person's income is above the $40,000 threshold for the higher tax rate.

Question 14

Suppose the government imposes a tax of 10 percent on the first $40,000 of income and 20 percent on all income above $40,000. What is the average tax rate when income is $50,000?
A)20 percent
B)15 percent
C)12 percent
D)10 percent

Accepted Answer

The answer of Suppose the government imposes a tax of...

Question 15

Total taxes paid divided by total income is called the
A)lump-sum tax liability.
B)marginal tax rate.
C)average tax rate.
D)average consumption tax liability.

Accepted Answer

The average tax rate is calculated as total taxes paid divided by total income.

Question 16

High marginal income tax rates
A)distort incentives to work.
B)are used to encourage saving behavior.
C)will invariably lead to lower average tax rates.
D)are not associated with deadweight losses.

Accepted Answer

High marginal income tax rates create a disincentive for individuals to work more hours or take on additional work because they will face a higher tax burden on the additional income earned. This can lead to a decrease in overall economic output and productivity.

Question 17

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
A)marginal tax rate is 20 percent.
B)average tax rate is 5 percent.
C)marginal tax rate is 25 percent.
D)average tax rate is 25 percent.

Accepted Answer

The marginal tax rate is the rate at which the next dollar of income would be taxed. In this case, the tax paid on the last dollar earned is $0.25, which means that if the individual earns one more dollar, it would be taxed at a rate of 25%. Therefore, the marginal tax rate is 25%.

The average tax rate is the proportion of total income that is paid in taxes. In this case, the income tax liability is $10,000, which is 20% of the total income of $50,000. Therefore, the average tax rate is 20%.

Since the question asks about the tax rate on the last dollar earned, the correct choice is C, which is the marginal tax rate of 25%.

Question 18

Suppose the government imposes a tax of 20 percent on the first $50,000 of income and 30 percent on all income above $50,000. What is the marginal tax rate when income is $60,000?
A)10 percent
B)20 percent
C)30 percent
D)50 percent

Accepted Answer

When income is $60,000, the first $50,000 is subject to a 20 percent tax rate, leaving $10,000 subject to the higher 30 percent tax rate. Therefore, the marginal tax rate on the next dollar earned is 30 percent.

Question 19

Tim earns income of $60,000 per year and pays $21,000 per year in taxes. Tim paid 20 percent in taxes on the first $30,000 he earned. What was the marginal tax rate on the second $30,000 he earned?
A)20 percent
B)30 percent
C)50 percent
D)70 percent

Accepted Answer

The answer of Tim earns income of $60,000 per year...

Question 20

A person's average tax rate equals her
A)tax obligation divided by her marginal tax rate.
B)increase in taxes if her income were to rise by $1.
C)tax obligation divided by her income.
D)increase in taxes if her marginal tax rate were to rise 1percent.

Accepted Answer

The average tax rate is the tax obligation (the amount of taxes paid) divided by the person's income.

Quiz 12: The Design of the Tax System

Sue earns income of $80,000 per year. Her average tax rate is 50 percent. Sue paid $5,000 in taxes on the first $30,000 she earned. What was the marginal tax rate on the first $30,000 she earned, and what was the marginal tax rate on the remaining $50,000?

The average tax rate measures the

Suppose the government imposes a tax of 20 percent on the first $50,000 of income and 30 percent on all income above $50,000. What is the average tax rate when income is $60,000?

If we want to gauge the sacrifice made by a taxpayer, we should use 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?

If we want to gauge how much the income tax system distorts incentives, we should use the

If your income is $40,000 and your income tax liability is $5,000, your

Suppose the government imposes a tax of 10 percent on the first $40,000 of income and 20 percent on all income above $40,000. What are the tax liability and the marginal tax rate for a person whose income is $30,000?

A person's tax obligation divided by her income is called her

James earns income of $90,000 per year. His average tax rate is 40percent. James paid $5,500 in taxes on the first $40,000 he earned. What was the marginal tax rate on the rest of his income?

Sue earns income of $80,000 per year. Her average tax rate is 40 percent. Sue paid $4,500 in taxes on the first $30,000 she earned. What was the marginal tax rate on the rest of her income?

Suppose the government imposes a tax of 10 percent on the first $40,000 of income and 20 percent on all income above $40,000. What are the tax liability and the marginal tax rate for a person whose income is $50,000?

Suppose the government imposes a tax of 10 percent on the first $40,000 of income and 20 percent on all income above $40,000. What is the average tax rate when income is $50,000?

Total taxes paid divided by total income is called the

High marginal income tax rates

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

Suppose the government imposes a tax of 20 percent on the first $50,000 of income and 30 percent on all income above $50,000. What is the marginal tax rate when income is $60,000?

Tim earns income of $60,000 per year and pays $21,000 per year in taxes. Tim paid 20 percent in taxes on the first $30,000 he earned. What was the marginal tax rate on the second $30,000 he earned?

A person's average tax rate equals her