Question 1

The argument for greater equality of income distribution in the United States hinges on the idea that low-income earners would be more willing and able participants in the economy if income were distributed more equally.

Accepted Answer

Proponents of income equality argue that low-income earners would have more disposable income and be more likely to spend money on goods and services, which would stimulate economic growth. In addition, greater income equality could lead to a stronger middle class, which is often seen as a key driver of economic prosperity.

Question 2

Explain the following statement by Arthur Okun: "Insistence on carving the pie into equal slices would shrink the size of the pie.This fact poses the trade-off between economic equality and economic efficiency."

Accepted Answer

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Question 3

Define vertical equity and horizontal equity.How do tax loopholes sometimes create vertical and horizontal inequity?

Accepted Answer

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Question 4

What is the difference between nominal and effective tax rates? What creates the distinction?

Accepted Answer

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Question 5

Why isn't the level of personal income always a good measure of the distribution of goods and services?

Accepted Answer

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Question 6

The tax incidence of a payroll tax results in an increase in net wages.

Accepted Answer

The tax incidence of a payroll tax is ultimately borne by the employee, so net wages decrease.

Question 7

High-income families pay a significantly greater percentage of their income in taxes compared to low-income families.

Accepted Answer

Low-income families often pay a higher percentage of their income in taxes when considering all types of taxes, including sales, property, and payroll taxes, not just income taxes. This can lead to a regressive tax effect, where lower-income individuals bear a larger tax burden relative to their income.

Question 8

A major attraction of the flat tax is its simplicity.

Accepted Answer

The flat tax is often hailed as simple because it applies one tax rate to all income levels and eliminates most deductions and credits.

Question 9

In what way is the Social Security payroll tax regressive?

Accepted Answer

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Quiz 19: Taxes: Equity Versus Efficiency