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1 Copyright © 2018 McGraw-Hill Principles of Tax for Bus and Invest Plan 2018 Ed , 21e (Jones) Chapter 2 Policy Standards for a Good Tax 1) A tax meets the standard of sufficiency if it is easy for people to pay the tax.2) The federal government is not required to pay interest on the national debt.3) A static forecast of the revenue effect of a tax rate change assumes that the tax base does not change.4) A dynamic forecast of the revenue effect of a tax rate change assumes that the tax base does not change.5) The federal Social Security tax burden on employees has not increased since 1990 because the tax rate has not increased since that year.6) If State H increases its sales tax rate by 1%, its sales tax revenue must also increase by 1%.7) The city of Berne recently enacted a 10% tax on the price of a subway ticket. Consequently, Mrs. Lane now walks to work instead of taking the subway. Her behavior illustrates the substitution effect of a tax increase.8) Jurisdiction P recently increased its income tax rate. A taxpayer who reacts to the increase by working harder to earn more income is demonstrating the income effect of the rate increase.9) According to supply-side economic theory, a decrease in tax rates for high-income individuals could actually cause an increase in tax revenue.10) Supply-side economic theory holds that people who benefit from a tax rate reduction will spend their tax windfall on consumption goods.11) State use taxes are more convenient for individual consumers than state sales taxes.12) The Internal Revenue Service's cost of collecting $100 of tax revenue is about $3.13) A convenient tax has low compliance costs for taxpayers and low collection and enforcement costs for the government.14) According to the classical concept of efficiency, an efficient tax should be neutral in its effect on free market allocations of economic resources.15) According to the Keynesian concept of efficiency, an efficient tax should be neutral in its effect on free market allocations of economic resources.16) A tax meets the standard of efficiency if it generates enough revenue to pay for the public goods and services provided by the government.Principles of Taxation for Business and Investment Planning 21st Edition Jones Test Bank Visit TestBankDeal.com to get complete for all chapters

2 Copyright © 2018 McGraw-Hill 17) A provision in the tax law designed to encourage a specific economic behavior is a tax preference.18) A tax should result in either horizontal or vertical equity across taxpayers.19) Changes in the tax law intended to make the measurement of taxable income more precise usually make the tax law less complex.20) Vertical equity focuses on measurement of the tax base, and horizontal equity focuses on the tax rate structure.21) Tax systems with regressive rate structures result in a proportionally heavier tax burden on persons with smaller tax bases.22) A progressive rate structure and a proportionate rate structure both result in vertical equity across taxpayers.23) The U.S. individual income tax has always used a progressive rate structure.24) The declining marginal utility of income across individuals can be measured empirically.25) Tax liability divided by taxable income equals marginal tax rate.26) If a tax has a proportionate rate structure, a taxpayer's marginal rate and average rate are equal.27) If a tax has a progressive rate structure, a taxpayer's average rate is greater than her marginal rate.28) The theory of distributional justice is a rationale for a progressive income tax system.29) Individuals who believe that a tax system is fair are less likely to cheat on their taxes than individuals who believe that the system is unfair.30) Many taxpayers believe the income tax system is unfair because it is so complicated.31) Government officials of Country Z estimate that next year's public programs will cost $19 million but that tax revenues will be only $15 million. The officials could avoid a deficit next year by adopting which of the following fiscal strategies?

• Reduce the cost of public programs by $4 million.
• Increase taxes by $4 million.
• Borrow $4 million by issuing new government bonds.
• All of these strategies will avoid a deficit.

3 Copyright © 2018 McGraw-Hill 32) Government officials of Country Z estimate that next year's public programs will cost $19 million but that tax revenues will be only $15 million. Which of the following statements is false?

• Country Z's tax system is sufficient.
• Country Z's government is engaging in deficit spending.
• If Country Z must borrow $4 million to pay for its public programs, its national debt will

increase by $4 million.

• Country Z's government could balance its budget by eliminating a program that costs $4

million.33) Government J decides that it must increase its tax revenue. Which of the strategies could result in more revenue?

• Increase the rate of an existing tax.
• Expand the base of an existing tax.
• Enact a tax on a new base.
• All of these strategies could result in more revenue for Government J.

34) The government of Nation C operated at a $32 billion deficit this year. The deficit suggests

that Nation C's tax system is:

• Inefficient
• Insufficient
• Unfair
• Inconvenient

35) The city of Belleview operated at an $865,000 surplus this year. The surplus suggests that the

municipal tax system is:

• Fair
• Efficient
• Sufficient
• Convenient

36) Which of the following statements concerning the federal Social Security tax is true?

• The tax burden increases annually because the rate generally increases annually.
• The tax burden increases annually because the base generally increases annually.
• Both the rate and the base generally increase annually.
• The Social Security tax burden has not increased since 1990.

37) A static forecast of the incremental revenue from a tax rate increase presumes that:

• The tax base will not change because of the rate increase.
• The tax base will increase by the same proportion as the rate increase.
• The tax base will decrease by the same proportion as the rate increase.
• The tax rate and the tax base are correlated.

4 Copyright © 2018 McGraw-Hill 38) A dynamic forecast of the incremental revenue from a tax rate increase presumes that:

• Taxpayers will not change their behavior because of the rate increase.
• The tax base will increase by the same proportion as the rate increase.
• The tax base will decrease by the same proportion as the rate increase.
• The tax rate and the tax base are correlated.

39) Jurisdiction F levies a 10% excise tax on the purchase of golf carts. The annual revenue from this tax averages $800,000 (10% * $8 million average annual golf cart purchases). Jurisdiction F is considering raising the tax rate to 12%. Which of the following statements is true?

• The rate increase will increase revenue by $160,000.
• Based on a dynamic forecast, the rate increase will increase revenue by $160,000.
• Based on a static forecast, the rate increase will increase revenue by $160,000.
• None of the above is true.

40) Last year, Government G levied a 35% tax on individual income, and Mr. Slate paid $35,000 tax on his $100,000 income. This year, the government increased the tax rate to 40%. Which of the following statements is false?

• Based on a static forecast, government G should collect $5,000 additional tax from Mr. Slate

this year.

• If Mr. Slate took a second job to maintain his after-tax disposable income, his behavior

illustrates a substitution effect of the rate increase.

• If Mr. Slate took a second job to maintain his after-tax disposable income, government G

should collect more than $5,000 additional tax from him this year.

• If Mr. Slate sold an income-generating investment and used the money for personal

consumption, his behavior illustrates a substitution effect of the rate increase.41) Which of the following statements about the substitution effect of an income tax rate increase is false?

• The substitution effect is theoretically stronger for high-income taxpayers than for low-

income taxpayers.

• The substitution effect is theoretically stronger for a family's secondary wage earner than for

the family's primary wage earner.

• The substitution effect is theoretically stronger for self-employed individuals who control

their own time than for employees whose work schedules are controlled by their employers.

• None of the above is false.

42) Which of the following statements about the income effect of an income tax rate increase is true?

• The income effect is theoretically stronger for low-income taxpayers than for high-income

taxpayers.

• The income effect is theoretically stronger for a family's secondary wage earner than for the

family's primary wage earner.

• The income effect motivates individuals to find ways to increase their before-tax income.
• Both A. and C. are true.