Question & Answer

What is the difference between the income and substitution effects?  For which types of taxpayers is the income effect more likely descriptive?  For which types of taxpayers is the substitution effect more likely descriptive?

Kobestrongly dislikes SUVs and is appalled that so many are on the road.  He proposes to eliminate the federal income tax and replace it with a $50,000 annual tax per SUV.  Based on the number of SUVs currently owned in the United States, he estimates the tax will generate exactly the amount of tax revenue currently collected from the income tax.  What is wrong with Kobe’s proposal?  What type of forecasting is Kobelikely using?

Benjaminrecently bought a truck in Alabama for his business in Georgia.  What different types of federal and state taxes may affect this transaction?

When we calculate average and effective tax rates, do we consider implicit taxes?  What effect does this have on taxpayers’ perception of equity?

What are the differences between an explicit and an implicit tax?

What is an ad valorem tax?  Name an example of this type of tax.

What is the difference between a sales tax and a use tax?

The state of Georgia recently increased its tax on a pack of cigarettes by $2.00.  What type of tax is this?  Why might Georgia choose this type of tax?

What are some of the taxes that currently are unique to state and local governments?  What are some of the taxes that the federal, state, and local governments each utilize?

What is the distinguishing feature of an excise tax?

What is the distinguishing feature of an excise tax?

What is the tax base for the Social Security and Medicare taxes for an employee or employer?  What is the tax base for Social Security and Medicare taxes for a self-employed individual?  Is the self-employment tax in addition to or in lieu of federal income tax?

Which is the largest tax collected by the U.S. government?  What types of taxpayers are subject to this tax?

Arnold and Lilly have recently had a heated discussion about whether a sales tax is a proportional tax or a regressive tax.  Arnoldargues that a sales tax is regressive.  Lillycounters that the sales tax is a flat tax.  Who is correct?

Relative to the average tax rate, the effective tax rate provides a better depiction of a taxpayer’s tax burden because it depicts the taxpayer’s total tax paid as a ratio of the sum of both taxable and nontaxable income earned. 

Which is a more appropriate tax rate to use to compare taxpayers’ tax burdens – the average or the effective tax rate?  Why?

Describe the three different tax rates discussed in the chapter and how taxpayers might use them.

Dontae stated that he didn’t want to earn any more money because it would “put him in a higher tax bracket.”  What is wrong with Dontae’s reasoning?

One common argument for imposing so-called sin taxes is the social goal of reducing demand for such products.  Using cigarettes as an example, is there a segment of the population that might be sensitive to price and for whom high taxes might discourage purchases?

If the general objective of our tax system is to raise revenue, why does the income tax allow deductions for charitable contributions and retirement plan contributions?

As noted in Example 1-2, tolls, parking meter fees, and annual licensing fees are not considered taxes.  Can you identify other fees that are similar? 

To help pay for the city’s new stadium, the city of Birmingham recently enacted a 1 percent surcharge on hotel rooms. Is this a tax?  Why or why not?

Marlon and Latoya recently started building a house.  They had to pay $300 to the county government for a building permit.  Is the $300 payment a tax?  Why or why not?

Courtney recently received a speeding ticket on her way to the university.  Her fine was $200.  Is this considered a tax?  Why or why not?

Describe some ways in which taxes affect the political process in the United States.