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Tax 2012 Ch. 2

Principles of Taxation for Business and Investment Planning, Ch. 2

QuestionAnswer
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
Created by: 835093078