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Exam 12: The Design of the Tax System

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Question 101

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Suppose an excise tax is imposed on luxury boats and yachts. Economists argue that such a tax

A) is sure to be vertically equitable, since buyers of luxury boats and yachts are wealthy.
B) entails no deadweight loss as long as buyers of boats and yachts can easily substitute one luxury good for another.
C) violates the benefits principle of taxation.
D) may burden workers in the luxury-boat-and-yacht industry more than it burdens the buyers of luxury boats and yachts.

E) B) and C)
F) B) and D)

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Question 102

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If transfer payments are included when evaluating tax burdens, then the average tax rate of the poorest quintile of taxpayers would be approximately

A) negative 30 percent.
B) negative 10 percent.
C) positive 1 percent.
D) positive 8 percent.

E) All of the above
F) A) and B)

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Question 103

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Vertical equity and horizontal equity are associated with

An income tax in which the average tax rate is the same for all taxpayers would be considered a

Table 12-21 The dollar amounts in the last three columns are the taxes owed under the three different tax systems. -Refer to Table 12-21. Which of the three tax systems is progressive?

Table 12-17 The following table shows the marginal tax rates for unmarried individuals for two years. -Refer to Table 12-17. Suppose one goal of the tax system was to achieve vertical equity. While people may disagree about what is "equitable," based on the marginal tax rates given for the two years, which of the following statements is true?

List the three most important expenditure programs of the federal government. How do they differ from the three most important expenditure programs of state and local governments? Explain why it makes more sense for the federal government to purchase "national defense" rather than state governments.

A budget deficit occurs when government receipts exceed government spending.

Which of the following statements is correct?

In 2011, state and local government education spending was more than five times highway spending.

​Sonja paid $15,000 in taxes after having earned $100,000. Amanda paid $22,000 in taxes after having earned an income of $146,667.This is an example of a proportional tax.

Table 12-3 -Refer to Table 12-3. What is the marginal tax rate for a person who makes $60,000?

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?

The government raises revenue through taxation to pay for the services it provides.

​Which of the following tax structures is potentially consistent with the concept of vertical equity?

High marginal income tax rates

Table 12-4 -Refer to Table 12-4. What is the average tax rate for a person who makes $130,000?

Scenario 12-2 Suppose that Bob places a value of $10 on a movie ticket and that Lisa places a value of $7 on a movie ticket. In addition, suppose the price of a movie ticket is $5. -Refer to Scenario 12-2. What is total consumer surplus for Bob and Lisa?

Table 12-3 -Refer to Table 12-3. What is the average tax rate for a person who makes $60,000?

Scenario 12-1 Ken places a $20 value on a cigar, and Mark places a $17 value on it. The equilibrium price for this brand of cigar is $15. -Refer to Scenario 12-1. Suppose the government levies a tax of $1 on each cigar, and the equilibrium price of a cigar increases to $16. How much tax revenue is collected?