Topic 1 Tax Structures

Question 1

Fill in the blanks & select right option:

a _______ required by a __________ that is (unrelated )/(specific) to a benefit or service received from the government.

Answer 1

payment
government
unrelated

Question 2

what is the basic formula for calculating tax?

Answer 2

tax = tax base x tax rate

Question 3

what is tax rate?

Answer 3

the level of tax imposed on the tax base

Question 4

what is tax base?

Answer 4

what is being taxed

Question 5

the tax rate that applies to the next additional increment of a taxpayer’s taxable income is know as what?

Answer 5

marginal tax rate

Question 6

the taxpayer’s average level of taxation on each dollar of taxable income is called what?

Answer 6

average tax rate

Question 7

the taxpayer’s average rate of taxation on each dollar of total income (both taxable and non-taxable) is the what?

Answer 7

effective tax rate

Question 8

formula for calculating the marginal tax rate

Answer 8

🔺tax/🔺income

Question 9

formula for calculating the average tax rate

Answer 9

total tax/taxable income

Question 10

formula for calculating the effective tax rate

Answer 10

total tax/total income

Question 11

which tax rate provides the best depiction of the tax payer’s burden?

Answer 11

effective tax rate

Question 12

what tax rate structure is constant tax rate throughout the tax base?

Answer 12

proportional or flat

Question 13

what tax rate structure has an increasing marginal rate as the tax bas increases?

Answer 13

progressive

Question 14

what tax rate structure has a decreasing marginal tax rate as the tax bas increases?

Answer 14

regressive

Question 15

which tax rate structure do we currently have under the Tax Cuts & Jobs Act?

Answer 15

progressive

Question 16

what type of tax rate structure is applied to sales? individual income? unemployment? corporate income?

Answer 16

sales - proportional
individual income - progressive
unemployment - regressive
corporate income - proportional

Question 17

What tax generates the largest revenue in the US?

Answer 17

income tax

Question 18

Categorize each tax as either federal or state/local:

• income
• employment
• property (ad valorem)
• transfer
• excise
• unemployment
• sales & use

Answer 18

• income: both federal and state/local
• employment: federal
• property (ad valorem): state/local
• transfer: federal
• excise: both federal and state/local
• unemployment: federal
• sales & use: state/local

Question 19

What is the 2nd largest revenue generating tax for the US?

Answer 19

employment/unemployment

Question 20

How are excise taxes imposed?

Answer 20

by the quantity of products sold (i.e. gasoline)

Question 21

What is the 3rd larges revenue generating tax?

Answer 21

excise taxes

Question 22

How are transfer taxes levied?

Answer 22

by the fair market value of wealth transfer by death or gift

Question 23

What is ad valorem?

Answer 23

a tax base that is the fair market value of the property

Question 24

what tax is imposed on the retail price of goods owned, possessed, or consumed within a state that were not purchased there?

Answer 24

use tax

Question 25

indirect taxes that result from a tax advantage the government grants to certain transaction are called what?

Answer 25

implicit taxes

Question 26

the reduced before-tax rate of return that a tax-favored asset produces because of its tax advantaged status is known as what?

Answer 26

implicit taxes

Question 27

How to calculate implicit tax

Answer 27

choice 1 vs choice 2 amount of interest received before-tax and amount of interest total after tax. calculate rate after tax. figure the difference.

Question 28

What tax system quality assesses the aggregate size of the tax revenues that must be generated and making sure that the tax system provides these revenues?

Answer 28

Sufficiency

Question 29

How is sufficiency estimated?

Answer 29

static or dynamic forecasting

Question 30

(static/dynamic) forecasting ignores how the taxpayer may change their behavior to the proposed change in law

Answer 30

static

Question 31

(static/dynamic) forecasting takes into account the taxpayer response to the proposed change in law

Answer 31

dynamic

Question 32

what tax system quality is how the tax burden should be distributed across taxpayers?

Answer 32

equity

Question 33

how is equity evaluated?

Answer 33

by horizontal and vertical equity

Question 34

(horizontal/vertical) equity means that 2 taxpayers in the same situation will pay the same tax

Answer 34

horizontal

Question 35

(horizontal/vertical) equity means that when taxpayers have a greater ability to pay more tax, they will

Answer 35

vertical

Question 36

What tax system quality means that taxpayers should be able to determine when to pay the tax, where to pay the tax, and how to determine the tax?

Answer 36

certainty

Question 37

What tax system quality states a tax system should be designed to be collected with undue hardship to the taxpayer?

Answer 37

convenience

Question 38

What tax system quality states that a tax system should minimize the compliance and administration costs associated with the tax system?

Answer 38

economy