12 Flashcards
Why does deadweight loss occur
Taxes distort behavior
Which one of the following is the best example of a tax justified under the benefit principle
A)an inheritance tax
B) A hockey ticket tax to help pay for the building of a new hockey arena
C) and income tax to finance space exploration
D) A payroll tax to help fund education
B
Which one of the following would be an effect of replacing income tax with a flat rate consumption tax
A) it would encourage less savings
B) it would make the tax system more progressive
C) it would mean that to families with the same income would not necessarily have the same tax bill
D) it would decrease the after-tax interest-rate received on bank accounts
D
The marginal tax rate is
The percentage of any additional income that is taxed
If a person pays $2000 tax on income of $10,000, and $3000 on her income of $20,000 what is the tax structure
A) average
B) marginal
C) Regressive
D) Progressive
C
Supposed to persons average tax rate is 25% and the marginal tax rate is 40%. It’s a person receives an additional $100 of income, which one of the following would be the amount of the implied additional tax payment?
A) $10
B) $25
C) $40
D) $65
C
Who bears the entire burden of the incidents of the corporate income tax
People
Which one of the following describes the most basic trade off in economics?
A). Between efficiency and equity
B). Between vertical and horizontal equity
C). Between business taxes and individual taxes
D) between the need of many and the desires of the few
A
Which of the following is characteristic of a tax system that satisfies the principle of vertical equity?
A) The average tax rate is higher for those with higher incomes
B) The marginal tax rate is the same for all
C). Those with high incomes pay more taxes
D). Those in similar situations pay the same amount of tax
C
Which one of the following is the biggest source of revenue for the Canadian federal government?
A) property taxes
B) individual income taxes
C) corporate income taxes
D) sales taxes
B
Which one of the following is the largest budget item for provincial governments?
A) transportation
B). Social services
C) education
D) healthcare
D healthcare
Which one of the following is the most efficient tax?
Lump sum tax
Which one of the following is the best example of attack said usually justified on the grounds of ability to pay? A) sales tax B) property tax C) corporate income tax D) Progressive income tax
D
Which one of the following defines an efficient tax?
A) when that raises large amounts of money quickly
B). One that generates revenue at the least cost to buyers
C) One that satisfies both vertical and horizontal equity
D) One that is easy to administer
B
Which one of the following is associated with vertical equity and horizontal equity?
A) The benefits principle of taxation
B). The ability to pay principle of taxation
C) falling marginal tax rates
D) rising marginal tax rate
B
The structure of the Canadian federal income tax is progressive, which one of the following best explains what this means?
A) average tax rates that rise and marginal tax rate that are constant at most income levels
B) average tax rate that are more than marginal tax rate at most income levels
C) average tax rate that are less than marginal tax rate at most income levels
D) average and marginal tax rates are equal and rise at most income levels
C
Lump sum taxes are sometimes promoted as superior to other forms of taxation. Yet they are relic rarely included in real world text structures.
What are lump sum taxes and what are the advantages over traditional taxes? Explain
Everyone pays the same amount of tax regardless of how much money they make
Lump sum taxes due north not distorts behavior because there is no behavior change that can alter them
The cost to taxpayers is just the text itself and there is no deadweight loss
What characteristics of lump sum taxes keep them from becoming more commonly used?
In spite of their efficient see advantages, lump sum taxes have a major drawback in terms of equity.
Because everyone pays exactly the same amount, the taxes highly regressive.
The wealthy pay the exact same amount of taxes as a homeless person.
The benefits principle seems much more objective as a measure of equity then the ability to pay principle. In spite of this, the benefits principles not used very often to justify a tax proposal. Why is not it used more often? Why is it easier to justify most taxes on ability to pay grounds?
It’s hard to determine how much government programs individuals use
In most cases tax revenue goes directly into general revenue used to fund programs in general.
Income tax, for example can be defended based on ability to pay but would be hard to link to specific programs in their beneficiaries.
Only in a few cases, such as gasoline tax used to build and maintain Highways, can beneficiaries be identified close enough to use the benefit principal
Parliament has built many incentives into the tax laws to encourage certain types of behavior, such as deductions for charitable giving and contributions to RRSPs and registered education savings plans. Even if these inducements are socially desirable on efficiency grounds are there anyways that they might interfere with the achievement of equity
These tax breaks can interfere with both vertical and horizontal equity
- higher income individuals are more likely to give to charities and to save for retirement, this tax break will tend to reduce the tax burden for them, reducing the progressivism of the income tax
- also this means that two taxpayers with identical incomes or abilities to pay may have different tax bills if one gets to major charity or saves more for his retirement this would violate horizontal equity
What do economist mean when they argue that the text system should be efficient and equitable?
It means that taxes should impose a small of a cost on society as possible and that the burden of the taxes should be distributed fairly
If the tax rate is regressive when applied using a consumption tax what is happening
The average tax rate falls from 13% to 10.9% as income rises from 10,000 to 50,000. This occurs because consumption rises at a slower rate than income. Text peers earning only $10,000 spend their entire income and therefore pay the 13% HST on the whole income. Text peers earning 50,000 spend only 84% of it
With regards to consumption tax for everybody pays the exact same percent on what they spend their money on, would things change if certain basic necessities like food and clothing or exempt from this tax
Exempting the Necessities would reduce taxes for all taxpayers, but the biggest percent reduction would be for lower income tax peers, who’s been proportionately more on such goods. This would make the taxed less regressive although it would be unlikely to eliminate regressivity completely
Is a consumption tax, such as the sales tax, likely to be more or less efficient than an income tax with a comparable yield? Would exempting food and clothing make the sales tax more efficient or less efficient explain
Consumption taxes tend to be more efficient than income taxes. They do not discourage savings by taxing interest received. The income tax introduces a tax wedge between suppliers in demanders of saving. Consumption tax avoids the source of any fission C, and resulting deadweight loss, when the interest received by savers is less than the interest paid by banks because of tax on interest. Exempting food and clothing distorts behaviors creating inefficiency
Taxable income. Tax rate
10,000. 10%
50,000. 20%
100,000. 30%
$10,000 x 10%= 1,000
40000 x 20% = 8,000 + 1,000 = 9,000
Marginal tax rate = 9,000 / 40,000 = 22.5%
The average tax rate is
Total taxes paid divided by total income
