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Exam 1: An Introduction to Tax

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Question 61

Multiple Choice

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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.

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Question 62

Multiple Choice

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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 the choices are correct.

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Question 63

Multiple Choice

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Leonardo, who is married but files separately, 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. If Leonardo and his wife file married filing jointly in 2018, what would be their average tax rate (rounded) ? (Use tax rate schedule)

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 24%. 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?

Leonardo, who is married but files separately, 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 2018 (rounded) ? (Use tax rate schedule) ".

If Susie earns $750,000 in taxable income and files as head of household for year 2018, what is Susie's average tax rate (rounded) ? (Use tax rate schedule) ".

Jackson has the choice to invest in city of Mitchell bonds or Sundial, Inc. corporate bonds that pay 10% interest. Jackson is a single taxpayer who earns $55,000 annually. Assume that the city of Mitchell bonds and the Sundial, Inc. bonds have similar risk. What interest rate would the city of Mitchell have to pay in order to make Jackson indifferent between investing in the city of Mitchell and the Sundial, Inc. bonds for year 2018? (Use tax rate schedule)

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

Manny, a single taxpayer, earns $65,000 per year in taxable income and an additional $12,000 per year in city of Boston bonds. What is Manny's current marginal tax rate for year 2018? (Use tax rate schedule)

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

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

Fred and Wilma, married taxpayers, earn $100,000 in taxable income and $20,000 in interest from an investment in city of Bedrock Bonds. Using the U.S. tax rate schedule for married filing jointly for year 2018, how much federal tax will they owe? What is their average tax rate? What is their effective tax rate? What is their current marginal tax rate? If Fred and Wilma earn an additional $40,000 of taxable income, what is their marginal tax rate on this income? (Round the tax rates to 2 decimal places, e.g., .12345 as 12.35%) (Use tax rate schedule)

To calculate a tax, you need to know: I. the tax base II. the taxing agency III. the tax rate IV. the purpose of the tax