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Tax 2012 Ch. 2
Principles of Taxation for Business and Investment Planning, Ch. 2
| Question | Answer |
|---|---|
| What is meant by "tax policy"? | How people will generally respond a tax. |
| What are the four standards for a good tax? | sufficiency, convince, efficiency, and fairness. |
| If a tax generates enough funds to pay for the public goods and services provided by the government, it is considered to be __________. | sufficient |
| True or False? The U.S. tax system is sufficient. | False |
| An insufficient tax system results in a federal _________. | deficit |
| To increase tax revenues, countries can ______, ______, or _____. | increase gambling, lease/sell property, or borrow money. |
| States can increase tax revenues by ______, ________, or _____. | exploiting a new tax base, increasing the rate of an existing base, or enlarging a tax base. |
| Exploiting a new tax base is the (most difficult/least difficult) way to increase revenues. | most difficult, example is adding sales tax to Oregon. |
| Enlarging the existing tax base is the (most difficult/least difficult) way to increase tax revenues. | least difficult. An example is the social security base is constantly increasing. |
| Debt refers to the sum total of all the US owes and is most similar to the accounting financial statement, the _______ ________. | balance sheet |
| Deficit refers to the annual loss, and is most similar to the accounting financial statement, the _______ _________. | income statement. |
| What are the two types of revenue forecasts? _______ and _______. | Static and Dynamic |
| The static revenue forecast assumes that the ________ stays the same even with a rate increase. | base |
| The dynamic revenue forecast assumes that the ______ will change due to a change in _______. | base, rate |
| What effect occurs when taxpayers adjust their work effort to keep after-tax income the same? | the income effect. |
| What effect occurs when taxpayers choose leisure over labor? | the substitution effect. |
| What does convenience mean for the government? (3 criteria) | A convenient tax for the government is easy to administer, understand, and get compliance for. |
| What does convenience mean for the taxpayer? (3 criteria) | A convenient tax for the taxpayer is easy to pay, determine, and takes minimal time/money to comply. |
| True or False? The U.S. federal income tax system is convenient for the government. | True |
| True or False? The U.S. federal income tax system is convenient for the taxpayer. | False |
| What are the two standards for efficiency? | Classical and Keynesian. |
| Which standard of efficiency does the government follow? | Keynesian. |
| The Keynesian (modern) standard states that the government should use tax policy to govern the markets. True or False? | True |
| An efficient tax using the Keynesian model has an impact on behavior. True or False? | True |
| Fairness in the tax law refers to a taxpayers ability to ______. | pay |
| If a tax is based on ability to pay, we consider it to be ______. | fair |
| Horizontal equity occurs when people with the same ability to pay, pay (the same/different) tax. | the same |
| Vertical equity occurs when the person with the greater ability to pay, pays (more/less) tax. | more |
| True or False? Vertical equity only occurs if the person with the greater ability to pay tax pays $10.00 more than the other person. | False, vertical equity occurs even if the person with the greater ability to pay only pays $1.00 more. |
| If two people have the same income, but one is married. Do they have the same ability to pay? | No. |
| If two people have the same income, but one has cancer. Do they have the same ability to pay? | No. |
| A tax preference has nothing to do with ability to pay. True or False? | True. |
| Vertical equity is concerned with a fair rate structure. True or False? | True, even to the extent of a dollar. |
| What is the formula to find the average tax rate? | total tax paid / taxable income. |
| The __________ tax rate is the rate applied to the next dollar of taxable income. | marginal |
| In a proportional tax rate structure, the average tax rate remains the same as the tax base increases. An example of this is the __________ tax. | Sales |
| The average tax rate remains the same as the tax base increases in a ________________ tax rate structure. | proportional. On a graph, this is just a flat line. |
| In a _________ tax rate structure, average tax rate and marginal tax rate are the same. | proportional |
| A sales tax is considered regressive in terms of economic sacrifice because | lower income tax payers have to pay a larger proportion of their income on sales tax goods. |
| In a regressive tax rate structure, the average tax rate ________ as the tax base ____________. | decreases, increases |
| In a progressive tax rate structure, the average tax rate _________ as tax base ____________. | increases, increases |
| In a regressive tax, the ______ rate is higher than the _____ rate. | average, marginal |
| In a progressive tax, the ________ rate is higher than the _______ rate. | marginal, average |
| Distributive justice is the ultimate goal of _______ _________. | tax policy |
| The perception of taxpayers that the tax system is unfair results in less ___________. | compliance |
| Tax preferences and loopholes improve equity. True or False? | False |
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