ACC250 Chapter 1

Question 1

A tax based on the value of property.

Answer 1

ad valorem

Question 2

A taxpayer’s average level of taxation on each dollar of taxable income.
ATR = total tax / taxable income

Answer 2

average tax rate

Question 3

A subset (or portion) of the tax base subject to a specific tax rate. These are common to graduated taxes.

Answer 3

bracket

Question 4

One of the criteria used to evaluate tax systems. This means taxpayers should be able to determine when, where, and how much tax to pay.

Answer 4

certainty

Question 5

One of the criteria used to evaluated tax systems. This means a tax system should be designed to facilitate the collection of tax revenues without undue hardship on the taxpayer or the government.

Answer 5

convenience

Question 6

The process of forecasting tax revenues that incorporates into the forecast how taxpayers may alter their activities in response to a tax law change.

Answer 6

dynamic forecasting

Question 7

A tax assessed for a specific purpose (e.g., for education).

Answer 7

earmarked tax

Question 8

One of the criteria used to evaluate tax systems. This means a tax system should minimize its compliance and administration costs.

Answer 8

economy

Question 9

The taxpayer’s average rate of taxation on each dollar of total income (taxable & nontaxable income).
ETR = total tax / total income

Answer 9

effective tax rate

Question 10

Taxes consisting of the Old Age, Survivors, and Disability Insurance (OASDI) tax, commonly called the Social Security tax, and the Medical health Insurance (MHI) tax (a.k.a. Medicare tax).

Answer 10

employment taxes

Question 11

One of the criteria used to evaluate a tax system. A tax system is considered this if the tax is based on the taxpayer’s ability to pay; taxpayers with a greater ability to pay tax, pay more tax.

Answer 11

equity

Question 12

A federal transfer tax. Based upon the fair market values of wealth transferred upon death.

Answer 12

estate tax

Question 13

Taxes levied on the retail sale of particular products. They differ from other taxes in that the tax base for this tax typically depends on the quantity purchased rather than a monetary amount.

Answer 13

excise taxes

Question 14

A tax directly imposed by a government.

Answer 14

explicit tax

Question 15

A tax in which a single tax rate is applied through the tax base.

Answer 15

flat tax

Question 16

A federal transfer tax. Based on the fair market value of the gift.

Answer 16

gift tax

Question 17

Taxes in which the tax base is divided into a series of monetary amounts, or brackets, where each successive bracket is taxed at a different (gradually higher or gradually lower) percentage rate.

Answer 17

graduated taxes

Question 18

One of the dimensions of equity. This is achieved if taxpayers in similar situations pay the same tax.

Answer 18

horizontal equity

Question 19

Indirect taxes that result from a tax advantage the government grants to certain transactions to satisfy social, economic, or other objectives. They are defined as the reduced before-tax return that a tax-favored asset produces because of its tax-advantaged status.

Answer 19

implicit tax

Question 20

One of the two basic responses that a taxpayer may have when taxes increase. This predicts that when taxpayers are taxed more (ex. tax rate increases), they will work harder to generate the same after-tax dollars.

Answer 20

income effect

Question 21

A tax in which the tax base is income. These are imposed by the federal government and most states.

Answer 21

income tax

Question 22

Taxes imposed by local governments.

Answer 22

local tax

Question 23

The tax rate that applies to the next additional increment of a taxpayer’s taxable income (or to deductions).
MTR = (new total tax - old total tax) / (new taxable income - old taxable income)

Answer 23

marginal tax rate

Question 24

The medical Health Insurance (MHI) tax. This tax helps pay medical costs for qualifying individuals. This tax helps pay medical costs for qualifying individuals. This tax rate for employees is 1.45% up to $200000 ($125k if filing separately; $250k married filing jointly). & is 2.35% in excess of $200k ($125k sep.;$250 mj). For employers, the tax rate is 1.45% regardless of amt of wages.

Answer 24

Medicare tax

Question 25

A tax on the fair market value of all types of tangible and intangible property, except real property.

Answer 25

personal property tax

Question 26

A tax rate structure that imposes an increasing marginal tax rate as the tax base increases. As the tax base increases, both the marginal tax rate and the taxes paid increase.

Answer 26

progressive tax rate structure

Question 27

Also known as flat tax. This tax rate structure imposes a constant tax rate throughout the tax base. As the tax base increases, the taxes paid increase proportionally.

Answer 27

proportional tax rate structure

Question 28

A tax on the fair market value of land and structures permanently attached to the land.

Answer 28

real property tax

Question 29

A tax rate structure that imposes a decreasing marginal tax rate as the tax base increases. As the tax base increases, the taxes paid increase, but the marginal tax rate decreases.

Answer 29

regressive tax rate structure

Question 30

A tax imposed on the retail sales of goods (plus certain services). Retailers are responsible for collecting and remitting the tax; typically collected at the point of sale.

Answer 30

sales tax

Question 31

Social Security and medicare taxes paid by the self-employed on a taxpayer’s net earnings from self-employment. Also called FICA tax.

Answer 31

self-employment tax

Question 32

Taxes imposed on the purchase of goods that are considered socially less desirable.

Answer 32

sin taxes

Question 33

The Old Age, Survivors, and Disability Insurance (OASDI) tax. Intended to provide basic pension coverage for the retired & disabled. EE’s pay SS tax rate of 6.2% on the wage base - ER’s also pay 6.2%. The base of this tax is limited to an annually determined amount of earned wages.

Answer 33

Social Security tax

Question 34

A tax imposed by one of the 50 U.S. States

Answer 34

state tax

Question 35

The process of forecasting tax revenues based on the existing state of transactions while ignoring how taxpayers may alter their activities in response to a tax law change.

Answer 35

static forecasting

Question 36

One of the two basic responses that a taxpayer may have when taxes increase. This response predicts that, when taxpayers are taxed more, rather than work more, they will substitute nontaxable activities for taxable ones because the marginal value of taxable activities has decreased.

Answer 36

substitution effect

Question 37

A standard for evaluating a good tax system. Defined as assessing the aggregate size of the tax revenues that must be generated and ensuring that the tax system provides these revenues.

Answer 37

sufficiency

Question 38

A payment required by a government that is unrelated to any specific benefit or service received from the government.

Answer 38

tax

Question 39

The item that is being taxed.

Answer 39

tax base

Question 40

The level of taxes imposed on the tax base, usually expressed as a percentage.

Answer 40

tax rate

Question 41

Taxes on the transfer of wealth from one taxpayer to another. Estate and gift taxes are examples.

Answer 41

transfer taxes

Question 42

The tax that pays for temporary unemployment benefits for individuals terminated from their jobs without cause.

Answer 42

unemployment taxes

Question 43

A tax imposed on the retail prices of goods owned, possessed, or consumed within a state that were not purchased within the state.

Answer 43

use tax

Question 44

A tax imposed on the producer of goods (and services) on the value of goods (services) added at each stage of production. Common in Europe.

Answer 44

value-added tax

Question 45

One of the dimensions of equity. This is achieved when taxpayers with greater ability to pay tax, pay more tax relative to taxpayers with a lesser ability to pay tax.

Answer 45

vertical equity