Archive for April 2017

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?

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? 




A. Invest in Sundial, Inc. bonds because their explicit tax is greater than the implicit tax on city of Mitchell bonds.

B. Invest in city of Mitchell bonds because their implicit tax is greater than the explicit tax on Sundial, Inc. bonds.

C. Invest in Sundial, Inc. bonds because their explicit tax is less than the implicit tax on city of Mitchell bonds.

D. Invest in city of Mitchell bonds because their implicit tax is less than the explicit tax on Sundial, Inc. bonds.

E. None of these.




Answer: D

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

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




Answer: C

Which of the following would not be a failure of the horizontal equity concept?

Which of the following would not be a failure of the horizontal equity concept? 




A. Two taxpayers with identical income pay different amounts of tax because one taxpayer's income includes tax exempt interest.

B. Two taxpayers pay different amounts of property tax amounts on similar plots of land (i.e., same value) because one plot of land is used to raise crops.

C. Two taxpayers pay different amounts of estate tax because one taxpayer's estate is worth significantly more.

D. All of these.

E. None of these.






Answer: C

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?

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? 




A. The ability to pay principle

B. Horizontal equity

C. Substitution effect

D. Vertical equity

E. None of these




Answer: C

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

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




A. Issue treasury bonds

B. Cut funding to various federal projects

C. Increase federal spending

D. Issue treasury bonds and cut funding to various federal projects but not increase federal spending

E. None of these




Answer: D

The substitution effect:

The substitution effect: 




A. Predicts that taxpayers will work harder to pay for consumer products when tax rates increase

B. Is one of the effects considered in static forecasting

C. Results in the government collecting more aggregate tax revenue than under the income effect

D. Is typically more descriptive for taxpayers with lower disposable income

E. None of these




Answer: E

The concept of tax sufficiency:

The concept of tax sufficiency: 




A. Suggests the need for tax forecasting

B. Suggests that a government should estimate how taxpayers will respond to changes in the current tax structure

C. Suggests that a government should consider the income and substitution effects when changing tax rates

D. All of these

E. None of these






Answer: D

Which of the following is true regarding real property taxes and personal property taxes?

Which of the following is true regarding real property taxes and personal property taxes? 




A. Personal property taxes are assessed on permanent structures and land

B. Real property taxes are assessed on cars and boats

C. All U.S. states currently impose personal property taxes

D. Real property taxes are generally easier to administer than personal property taxes

E. None of these is true






Answer: D

Which of the following is true regarding use taxes?

Which of the following is true regarding use taxes? 




A. A use tax is relatively easy to enforce compared to a sales tax.

B. Use taxes attempt to eliminate any tax advantage of purchasing goods out of state.

C. Use taxes encourage taxpayers to buy goods out of state to avoid paying sales tax in their home state.

D. A use tax is generally a progressive tax.

E. None of these is true.





Answer: B

The ultimate economic burden of a tax is best captured by:

The ultimate economic burden of a tax is best captured by: 




A. The marginal tax rate

B. The effective tax rate

C. The average tax rate

D. The proportional tax rate

E. None of these is correct




Answer: B

The city of Granby, Colorado recently enacted a 1.5% surcharge on vacation cabin rentals that will help pay for the city's new elementary school. This surcharge is an example of ________.

The city of Granby, Colorado recently enacted a 1.5% surcharge on vacation cabin rentals that will help pay for the city's new elementary school. This surcharge is an example of ________. 




A. A sin tax to discourage undesirable behavior

B. A government fine

C. An earmarked tax

D. Both a sin tax to discourage undesirable behavior and an earmarked tax

E. None of these




Answer: C

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 2014, what is his current marginal tax rate?

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 2014, what is his current marginal tax rate? 




A. 15.00%

B. 25.00%

C. 28.00%

D. 33.00%

E. None of these




Answer: B

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 2014, what is his effective 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 2014, what is his effective tax rate (rounded)? 




A. 23.08%

B. 16.70%

C. 14.48%

D. 25.00%

E. None of these



Answer: B

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 2014, what is his 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 2014, what is his average tax rate (rounded)? 




A. 18.09%

B. 20.00%

C. 15.69%

D. 25.00%

E. None of these



Answer: A

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 2014, how much federal tax will he owe?

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 2014, how much federal tax will he owe? 




A. $15,000.00

B. $12,375.00

C. $10,856.25

D. $9,412.50

E. None of these





Answer: C

Sin taxes are:

Sin taxes are: 




A. Taxes assessed by religious organizations

B. Taxes assessed on certain illegal acts

C. Taxes assessed to discourage less desirable behavior

D. Taxes assessed to fund a specific purpose

E. None of these





Answer: C

Earmarked taxes are:

Earmarked taxes are: 





A. Taxes assessed only on certain taxpayers

B. Taxes assessed to fund a specific purpose

C. Taxes assessed for only a specific time period

D. Taxes assessed to discourage less desirable behavior

E. None of these





Answer: B

Which of the following is considered a tax?

Which of the following is considered a tax? 





A. Tolls

B. Parking meter fees

C. Annual licensing fees

D. A local surcharge paid on retail sales to fund public schools

E. Entrance fees paid at national parks






Answer: D

Which of the following is a tax? I. A 1% special sales tax for funding local road construction. II. A fee paid to the state for a license to practice as an attorney. III. An income tax imposed by Philadelphia on persons working within the city limits. IV. A special property assessment for installing a new water system in the taxpayer's neighborhood.

Which of the following is a tax?


I. A 1% special sales tax for funding local road construction.
II. A fee paid to the state for a license to practice as an attorney.
III. An income tax imposed by Philadelphia on persons working within the city limits.
IV. A special property assessment for installing a new water system in the taxpayer's neighborhood.




A. Only I is correct.

B. Only IV is correct.

C. Only III is correct.

D. III and IV are correct.

E. I and III are correct.






Answer: E

Margaret was issued a $150 speeding ticket. This is:

Margaret was issued a $150 speeding ticket. This is: 





A. A tax because payment is required by law

B. A tax because the payment is not related to any specific benefit received from the government agency collecting the ticket

C. Not a tax because it is considered a fine intended to punish illegal behavior

D. A tax because it is imposed by a government agency

E. Not a tax because Margaret could have avoided payment if she did not speed





Answer: C

Taxes influence which of the following decisions?

Taxes influence which of the following decisions? 




A. business decisions

B. personal decisions

C. political decisions

D. investment decisions

E. All of these





Answer: E
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