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Exam 1: An Introduction to Tax

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Question 41

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Given the following tax structure,what is the minimum tax that would need to be assessed on Lizzy to make the tax progressive with respect to average tax rates? What is the minimum tax that would need to be assessed on Lizzy to make the tax progressive with respect to effective tax rates? $\begin{array}{|c|r|r|r}\hline \text { Taxpayer } & \text { Salary } & \text { Muni-Bond Interest } & \text { Total Tax } \\\hline \text { Mort } & 20,000 & 5,000 & 4,000 \\\hline \text { Lizzy } & 80,000 & 30,000 & ? ? ? \\\hline\end{array}$  

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Mort's average tax rate is 20%.
A 20% ...

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Question 42

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Margaret recently received a parking ticket.This is a common example of a local tax.

A) True
B) False

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Question 43

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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 28%. If Curtis invested in the Initech,Inc.bonds,what would be his after-tax rate of return from this investment?

While sales taxes are quite common,currently the U.S.federal government does not impose a sales tax.

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?

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 in the text for year 2017,how much federal tax will he owe? (Use tax rate schedule in the text)

Raquel recently overheard two journalism students discussing the merits of the federal tax system.One student offered as an example of unfairness the spouse of a well-known politician who paid little income tax as most of the spouse's income was earned in the form of municipal bond interest.What type of taxes is the journalism student considering in his example? What type of taxes is he ignoring? Define each type of tax.What role does each type of tax play in calculating relative tax burdens? What role does each type of tax play in evaluating fairness?

Taxes influence which of the following decisions?

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.

Tax policy rarely plays an important part in presidential campaigns.

Jackson has the choice to invest in city of Mitchell bonds or Sundial,Inc.corporate bonds that pay 10% interest.Jackson is a single taxpayer who earns $55,000 annually.Assume that the city of Mitchell bonds and the Sundial,Inc.bonds have similar risk. Assume the original facts as given except that Jackson is a head of household taxpayer and the city of Mitchell pays interest of 7.8%.How would you advise Jackson to invest his money?

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 2017? (Use tax rate schedule in the text)  

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 2017,what is his marginal tax rate on this income? (Use tax rate schedule in the text)  

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.

Evaluate the U.S.federal tax system on the certainty and economy criteria.

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 2017,what is his current marginal tax rate? (Use tax rate schedule in the text)  

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 2017? (Use tax rate schedule in the text)

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

In a proportional (flat)tax rate system,the marginal tax rate will always equal the average tax rate.

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