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Exam 1: An Introduction to Tax

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Question 21

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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

F) C) and D)
G) A) and C)

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Question 22

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The effective tax rate,in general,provides a better depiction of a taxpayer's tax burden than the average tax rate.

A) True
B) False

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Question 23

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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?

Ariel invests $50,000 in a city of Las Vegas bond that pays 5% interest.Alternatively,Ariel could have invested the $50,000 in a bond recently issued by Jittery Joe's,Inc.that pays 8% interest with similar non-tax characteristics as the city of Las Vegas bond (e.g. ,similar risk) .Assume that Ariel's marginal tax rate is 25%.What is her after-tax rate of return for the city of Las Vegas bond? For the Jittery Joe's,Inc.bond? How much explicit tax does Ariel pay on the city of Las Vegas bond? How much implicit tax does she pay on the city of Las Vegas bond? How much explicit tax would she have paid on the Jittery Joe's,Inc.bond? Which bond should she choose?

Namratha has the choice between investing in a city of Watkinsville bond at 4.5% or a Moe's,Inc.bond at 7%.Assuming that both bonds have the same non-tax characteristics and that Namratha has a 25% marginal tax rate,in which bond should she invest? What interest rate offered by Moe's,Inc.would make Namratha indifferent between investing in the two bonds?

Tax policy rarely plays an important part in presidential campaigns.

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 2013 (rounded) ?

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.How much money would Leonardo and Theresa save if they filed jointly instead of separately for year 2013?

If Susie earns $750,000 in taxable income,how much tax will she pay as a single taxpayer for year 2013?

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?

Oswald is beginning his first tax course and does not really have a solid understanding of the role that taxes play in various decisions.Please describe for Oswald the various types of decisions that taxes may influence.

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?

Which of the following is true regarding use taxes?

The 9^th Amendment to the U.S.Constitution removed all doubt that a federal income tax was allowed under the U.S.Constitution.The 16^th amendment was ratified in February 1913.

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

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 2013,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%)

Junior earns $80,000 taxable income as a regional circuit stock car driver and is taxed at an average rate of 25 percent (i.e. ,$20,000 of tax) .If Congress increases the income tax rate such that Junior's average tax rate increases from 25% to 30%,how much more income tax will he pay assuming that the income effect is descriptive? What effect will this tax rate change have on the tax base and tax collected? What will happen to the government's tax revenues if Junior chooses to spend more time pursuing his other passions besides work (e.g. ,earns only $60,000 in taxable income) in response to the tax rate change? What is the term that describes this type of reaction to a tax rate increase? (Round your answers to two decimal places. )

Given the following tax structure,what is the minimum tax that would need to be assessed on Dora to make the tax progressive with respect to average tax rates? What is the minimum tax that would need to be assessed on Dora to make the tax progressive with respect to effective tax rates?

Jed Clampett is expanding his family-run beer distributorship into Georgia or Tennessee.His parents began the business many years ago and now three generations of Clampetts work in the family business.Jed will relocate the entire family (his parents,spouse,children,etc. ) to either state after the move.What types of taxes may influence his decision of where to locate his business? What non-tax factors may influence the decision?

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