Question 1

Which of the following principles encourages a vertically equitable tax system?

Accepted Answer

The ability to pay principle states that individuals or entities with higher incomes or wealth should contribute a greater proportion of their income or wealth through taxation. This encourages a vertically equitable tax system, as those who can afford to pay more are expected to do so.

Question 2

Which of the following federal government actions would make sense if a tax system fails to provide sufficient tax revenue?

Accepted Answer

When a tax system fails to provide sufficient tax revenue, the federal government may need to issue treasury bonds to borrow money to meet its financial obligations. However, this can increase the overall debt, which can be problematic in the long term. Therefore, it may also be necessary to cut funding to various federal projects to reduce spending and balance the budget. It may not be wise to increase federal spending in this situation, as this would exacerbate the shortfall and increase the debt. Thus, issuing treasury bonds and cutting funding to various federal projects is the best choice in this scenario.

Question 3

Leonardo,who is married but files separately,earns $80,000 of taxable income.He also has $15,000 in city of Tulsa bonds.His wife,Theresa,earns $50,000 of taxable income.If Leonardo earned an additional $30,000 of taxable income this year,what would be the marginal tax rate (rounded) on the extra income for year 2013?

Accepted Answer

In 2013, for married individuals filing separately, the 25% tax bracket ends at $87,850. With an additional $30,000, Leonardo's taxable income would be $110,000, placing him in the 28% tax bracket.

Question 4

Manny,a single taxpayer,earns $65,000 per year in taxable income and an additional $12,000 per year in city of Boston bonds.If Manny earns an additional $35,000 in taxable income in year 2013,what is his marginal tax rate (rounded) on this income?

Accepted Answer

First, we need to calculate Manny's total taxable income for the year:
$65,000 (taxable income) + $12,000 (city of Boston bonds) = $77,000
If he earns an additional $35,000 in taxable income in 2013, his new total taxable income would be:
$77,000 + $35,000 = $112,000
To determine Manny's marginal tax rate on this additional income, we need to consult the 2013 tax brackets for single taxpayers. Based on the IRS tax brackets for that year, any taxable income above $87,850 would fall into the 28% tax bracket. 
So, $112,000 - $87,850 = $24,150, which is Manny's taxable income that falls into the 28% tax bracket. Therefore, his marginal tax rate on this additional income would be 28%.

Question 5

Geronimo files his tax return as a head of household for year 2013.If his taxable income is $72,000,what is his average tax rate (rounded) ?

Accepted Answer

The average tax rate is calculated by dividing the total tax paid by the taxable income. For Geronimo, the total tax paid is $12,554 (calculated using the tax table for 2013). Therefore, the average tax rate is $12,554 / $72,000 = 0.1736, or 17.36% (rounded).

Question 6

Leonardo earns $80,000 of taxable income.He also has $15,000 in city of Tulsa bonds.His wife,Theresa,earns $50,000 of taxable income.If Leonardo and his wife file married filing jointly in 2013,what would be their average tax rate (rounded) ?

Accepted Answer

To calculate the average tax rate, first determine the total taxable income, which is $80,000 + $50,000 = $130,000. The city of Tulsa bonds are not taxable. For 2013, the tax brackets for married filing jointly are used to calculate the total tax. The average tax rate is then the total tax divided by the total taxable income. The calculation results in an average tax rate of approximately 18.74%.

Question 7

Congress recently approved a new,bigger budget for the IRS.What taxation concept evaluates the cost of administering our tax law?

Accepted Answer

The taxation concept that evaluates the cost of administering our tax law is economy. This concept considers the cost of collecting, enforcing, and administering the tax law, and seeks to minimize these costs while ensuring compliance with the law. The fact that Congress approved a bigger budget for the IRS suggests that policymakers recognize the importance of investing in effective tax administration to ensure the integrity of the tax system.

Question 8

Al believes that SUVs have negative social and environmental effects because of their increased carbon monoxide emissions.He proposes eliminating sales taxes on smaller automobiles in favor of higher sales taxes levied on SUVs.Al performs some calculations and comes to the conclusion that based on the current number of SUVs owned in the U.S.exactly the same amount of total sales tax will be collected under his reformed system.Which of the following concepts explains why Al's idea may not work?

Accepted Answer

The answer of Al believes that SUVs have negative social...

Question 9

Leonardo earns $80,000 of taxable income.He also has $15,000 in city of Tulsa bonds.His wife,Theresa,earns $50,000 of taxable income.What is Leonardo and Theresa's effective tax rate for year 2013 (rounded) ?

Accepted Answer

The answer of Leonardo earns $80,000 of taxable income.He also...

Question 10

Leonardo earns $80,000 of taxable income.He also has $15,000 in city of Tulsa bonds.His wife,Theresa,earns $50,000 of taxable income.How much money would Leonardo and Theresa save if they filed jointly instead of separately for year 2013?

Accepted Answer

The answer of Leonardo earns $80,000 of taxable income.He also...

Question 11

Which of the following is true regarding real property taxes and personal property taxes?

Accepted Answer

The answer of Which of the following is true regarding...

Question 12

The concept of tax sufficiency:

Accepted Answer

Tax sufficiency suggests that a government should estimate how taxpayers will respond to changes in the current tax structure (B), which involves tax forecasting (A) and considering the income and substitution effects when changing tax rates (C). Therefore, all three options listed are valid elements of the concept of tax sufficiency.

Question 13

Manny,a single taxpayer,earns $65,000 per year in taxable income and an additional $12,000 per year in city of Boston bonds.What is Manny's current marginal tax rate for year 2013?

Accepted Answer

The answer of Manny,a single taxpayer,earns $65,000 per year in...

Question 14

The substitution effect:

Accepted Answer

The answer of The substitution effect:
...

Question 15

Which of the following is true regarding tax-advantaged assets?

Accepted Answer

Tax-advantaged assets are often subject to implicit taxes, meaning that even though they may have lower explicit taxes, they may have other costs and fees associated with them that ultimately reduce their returns. Options A and D are incorrect because tax-advantaged assets are not typically subject to excise taxes and corporate bonds are not always considered tax-advantaged. Option E is incorrect because C is a valid answer.

Question 16

Which of the following would not be a failure of the horizontal equity concept?

Accepted Answer

Horizontal equity refers to the principle that taxpayers with similar income or assets should pay the same amount in taxes. Option C is not a failure of horizontal equity because the taxpayers have different estate values, justifying different tax amounts.

Question 17

Which of the following statements is true?

Accepted Answer

Municipal bond interest is subject to implicit tax because it is exempt from federal income tax, but may be subject to state and local income taxes. Option A is false because municipal bond interest is not subject to explicit federal tax. Option C is not always true and depends on the creditworthiness of the issuer. Option D is incorrect because option C is not always true. Option E is incorrect because option B is true.

Question 18

If Susie earns $750,000 in taxable income,how much tax will she pay as a single taxpayer for year 2013?

Accepted Answer

According to the 2013 tax bracket for single taxpayers, anyone earning between $183,251 and $398,350 falls into the 33% tax bracket. Susie’s taxable income of $750,000 puts her well within this bracket. To calculate her tax liability, we first need to find out how much of her income falls within each bracket:
- First $8,925 taxed at 10% = $892.50
- Next $27,324 taxed at 15% = $4,098.60
- Next $52,427 taxed at 25% = $13,106.75
- Next $120,000 taxed at 28% = $33,600.00
- Next $146,349 taxed at 33% = $48,469.50
Total tax liability = $100,167.35
However, we need to add in the additional Medicare tax imposed on high-income earners, which is 0.9% on any income over $200,000 for single taxpayers. In Susie’s case, that would be an additional $4,596.40. 
So, the total amount of tax Susie will pay is $104,763.75, which is closest to option C.

Question 19

Employers often withhold federal income taxes directly from worker's paychecks.This is an example of which principle in practice?

Accepted Answer

The principle of convenience is in practice here, as it is easier and more convenient for the employer to withhold federal income taxes from their employee's paychecks rather than having employees pay their taxes separately.

Question 20

Leonardo,who is married but files separately,earns $80,000 of taxable income.He also has $15,000 in city of Tulsa bonds.His wife,Theresa,earns $50,000 of taxable income.If Leonardo instead had $30,000 of additional tax deductions for year 2013,his marginal tax rate (rounded) on the deductions would be:

Accepted Answer

The answer of Leonardo,who is married but files separately,earns $80,000...

Quiz 1: An Introduction to Tax