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Exam 1: An Introduction to Tax

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Question 1

Multiple Choice

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Which of the following represents the largest percentage of average state tax revenue?

A) Sales tax
B) Individual income tax
C) Other
D) Property tax
E) None of the choices are correct

F) C) and D)
G) B) and C)

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Question 2

True/False

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The estate tax is assessed based on the fair market values of transfers made during a taxpayer's life.

A) True
B) False

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Question 3

Multiple Choice

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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 2018, his marginal tax rate (rounded) on the deductions would be: (Use tax rate schedule)

Relative to explicit taxes, implicit taxes are much easier to estimate.

One benefit of a sin tax (e.g., a tax on cigarettes) is that it should increase the demand for the products being taxed.

Ricky and Lucy are debating several types of taxes. Their debate has focused on the different types of tax rate structures and whether they are "fair." Please define each tax rate structure, provide examples of each structure, and discuss how each structure may be viewed with respect to vertical equity.

Horizontal equity is defined in terms of taxpayers in similar situations whereas vertical equity is defined in terms of taxpayers in different situations.

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

Oswald is beginning his first tax course and does not really have a solid understanding of the role that taxes play in various decisions. Please describe for Oswald the various types of decisions that taxes may influence.

Tax policy rarely plays an important part in presidential campaigns.

Milton and Rocco are having a heated debate regarding a national sales tax. Milton argues that a national sales tax is a proportional, vertically equitable tax. Rocco argues that a national sales tax would be a regressive, vertically inequitable tax. Explain both sides of the argument.

There are several different types of tax rates that taxpayers might use in different contexts. Describe each tax rate and how a taxpayer might use it.

Which of the following is considered a tax?

The main difficulty in calculating an income tax is determining the correct amount of the tax base.

Implicit taxes are indirect taxes on tax-favored assets.

Marc, a single taxpayer, earns $60,000 in taxable income and $5,000 in interest from an investment in city of Birmingham Bonds. Using the U.S. tax rate schedule for year 2018, what is his current marginal tax rate? (Use tax rate schedule)  

The concept of tax sufficiency:

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. How much money would Leonardo and Theresa save if they file jointly instead of separately for year 2018? (Use tax rate schedule)  

Curtis invests $250,000 in a city of Athens bond that pays 7% interest. Alternatively, Curtis could have invested the $250,000 in a bond recently issued by Initech, Inc. that pays 9% interest with similar risk as the city of Athens bond. Assume that Curtis's marginal tax rate is 24%. What is Curtis's after-tax rate of return on the city of Athens bond?

Given the following tax structure, what amount of tax would need to be assessed on Carrie to make the tax horizontally equitable? What is the minimum tax that Simon should pay to make the tax structure vertically equitable based on Fantasia's tax rate? This would result in what type of tax rate structure?