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Exam 1: An Introduction to Tax

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Question 31

Multiple Choice

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

A) They are typically subject to excise taxes to account for their low explicit taxes
B) A corporate bond is typically considered a tax-advantaged asset
C) They are often subject to implicit taxes
D) A corporate bond is typically considered a tax-advantaged asset and They are often subject to implicit taxes are correct but not They are typically subject to excise taxes to account for their low explicit taxes
E) None of these

F) A) and B)
G) None of the above

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Question 32

Multiple Choice

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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. Eliminating the current system of withholding income taxes directly from employee paychecks would:

A) Violate the convenience criterion of federal taxation
B) Increase the rate of compliance
C) Make collection of federal income taxes easier
D) All of these
E) None of these

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

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Question 33

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Nick and Jessica are married taxpayers that file married filing separately. Jessica earns $250,000 of taxable income per year. Nick earns $130,000 of taxable income per year. Using the appropriate U.S. tax rate schedule for year 2016, how much tax does each of them pay? What are their marginal and average tax rates? How much tax would they save, if any, if they filed jointly? (Round the tax rates to 2 decimal places, e.g., .12345 as 12.35%)

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.

A flat tax is an example of a graduated tax system.

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 2016?

Estimated tax payments are one way the federal income tax system addresses the "certainty" criterion in evaluating tax systems.

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 2016, what would be their average tax rate (rounded) ?

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 2016, what is his effective tax rate (rounded) ?

Taxes influence many types of business decisions but generally do not influence personal decisions.

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%. What is Curtis's after-tax rate of return on the city of Athens bond?

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

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

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

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?

Which of the following is not an example of a graduated tax rate structure?

Implicit taxes are indirect taxes on tax-favored assets.

The state of Georgia recently increased its tax on a carton of cigarettes by $2.00. What type of tax is this?

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

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 2016 (rounded) ?