CH 3: Introduction to Tax

Question 1

who care about taxes

Answer 1

-businessess
-politicians
-individuals

Question 2

why do businesses care abt taxes

Answer 2

business activities such as deciding location, etc, can affect a businesses taxes

Question 3

why do politicians care abt taxes

Answer 3

-they distinguish themselves from their opponents based on their tax rhetoric

-get in the way of an efficient tax system

-business hire lobbyists for/against various tax reasons

Question 4

what is a tax

Answer 4

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

Question 5

3 key components of a tax

Answer 5

payment required

Payment imposed by local gvt agency (local, state, federal)

Payment not tied directly to a benefit received by the taxpayer

Question 6

main purpose of a tax

Answer 6

fund government operations

Question 7

other purpose of taxes

Answer 7

-encourage behavior
-discourage behavior (sin taxes)
-special purpose (musems)

Question 8

what qualifies as a tax

Answer 8

anything u are required by the govt to pay for that does not benefit you in any way

ex: tax for road fixing

Question 9

How to calculate tax

Answer 9

Tax= Tax Base × Tax Rate

Question 10

Tax base

Answer 10

defines what is actually taxed and is expressed in monetary terms

Question 11

Tax rate

Answer 11

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

Question 12

3 types of tax rates

Answer 12

-average
-effective
-marginal

Question 13

average tax rate definition +formula

Answer 13

taxpayers avg level of taxation on each dollar of taxable income

total tax/ taxable income

Question 14

effective tax rate definition + formula

Answer 14

taxpayers abg rate of taxation on each dollar of total income (both tax and non taxable)

total tax/ total income

Question 15

key difference btw average and effective tax rate

Answer 15

denominator

Question 16

marginal tax rate definition + forumula

Answer 16

tax rate that applies to the next additional increment of a taxpayers taxable income

new tax-old tax/new taxable income-old taxable income

Question 17

accoutning income

Answer 17

based on gaap

Question 18

total/economic income

Answer 18

takes opportunity costs into consideration

Question 19

taxable income (skip)

Answer 19

based on tax codes and regulations

Question 20

difference btw 1 taxable inc and acct in and taxable inc and total inc (skip)

Answer 20

1-a compny cant reduce its taxable income by including fines but fines are considering for accounting income

2-taxable income doesnt include opportunity costs

Question 21

3 tax rate structures

Answer 21

-proportional
-progressive
-regressive

Question 22

proportional tax rate

Answer 22

imposes a constant tax rate throughout the tax base

-state sales tax, corporate tax rate

Question 23

progressive tax rate

Answer 23

imposes increasing marginal tax rate as tax base increases

-individual tax

Question 24

regressive tax

Answer 24

imposes a decreasing marginal tax as the tax base increases

social security taxes, employment taxes

Question 25

federal taxes (List)

Answer 25

Individual income tax excise taxes unemployment tax social security & medicare tax estate tax, customs & duties tax corporate income tax

Question 26

state and local taxes

Answer 26

-income taxes -sales and use taxes -property taxes -excise taxes

Question 27

income taxes (federal)

Answer 27

Levied on individuals, corporates, estates and trusts -largest one

Question 28

employment/unemploymet taxes (federal)

Answer 28

Second largest group Include social security and medicare tax Unemployment taxes fund temporary unemployment benefits for individuals terminated from their jobs without cause

Question 29

Excise taxes (federal)

Answer 29

3rd largest Levied on the quantity of products sold

Question 30

Estate taxes (federal)

Answer 30

Levied on the fair market values of wealth transfers upon death or gift

Question 31

sales and use taxes (state)

Answer 31

Tax base for sales tax is the retail sale of goods and some services Tax base for use tax is the retail price of which goods are owned,possesed, or consumed within a state that were not purchased within the state

Question 32

Property taxes (state)

Answer 32

Ad valorem taxes meaning that the tax base for each is the fair market value of the property Real property taxes consist of taxes on land and structures permanently attached to land Personal property taxes include assets on other types of property both tangible and intangible

Question 33

income taxes (state)

Answer 33

Most state taxable income calculations largely conform to the federal taxable

Question 34

Excise taxes (state)

Answer 34

States typically impose excise taxes on items subject to federal excise tax.

Question 35

Implicit taxes

Answer 35

Indirect taxes that result from a tax advantage the govt grants to certain transactions Defined as the reduced before tax return bc of its tax advantageous status Difficult to quantify but important to understand in evaluating the relative tax burdens of tax-advantaged investments

Question 36

alt tax systems

Answer 36

sufficiency equity certainty convenience economy

Question 37

sufficency

Answer 37

Involves assessing the aggregate size of the tax revenues that must be generated and making sure that the tax system provides these revenues

Question 38

static revenue forcasting

Answer 38

-part of sufficeny forecasting that ignores how taxpayers may alter their activities based to a tax law changes

Question 39

dynamic revenue forcasting

Answer 39

-part of sufficeny -forecasting that tries to predict possible responses by taxpayers to new tax laws Income effect& Substitution effect

Question 40

equity

Answer 40

How the tax burden should be distributed across taxpayers A tax system is considered fair or equitable if the tax is based on the taxpayers ability to pau horizontal and vertical equity

Question 41

horizontal equity

Answer 41

2 taxpayers in similar situations pay the same tax

Question 42

vertical equity

Answer 42

taxpayers w greater ability to pay tax pay more tax relative to ppl w lesser ability to pay

Question 43

Certainty

Answer 43

Taxpayers should be able to determine when and where to pay the tax and how to determine tax

Question 44

Convenience

Answer 44

Tax system should be designed to be collected without hardship to the taxpayer

Question 45

Economy

Answer 45

Should minimize the compliance and administration costs associated with the tax system

Question 46

The first personal income tax was enacted in 1861 to fund the

Answer 46

civil war

Question 47

The estate tax may also be referred to as the

Answer 47

death tax

Question 48

excise tax examples

Answer 48

-gasoline -coal -alc -tabocco -phones & airline tickets

Question 49

what is excluded from the estate giftdeath tax

Answer 49

payments on ones behalf for education

Question 50

tax base of a sales tax

Answer 50

retaile sales of goods and some services

Question 51

tax base for use tax

Answer 51

retail price of goods owned, possessed, or consumed within a state that were not purchased within the state

Question 52

whats an ad valorem tax

Answer 52

tax base is the fair market value

Question 53

example of economy tax system

Answer 53

state enforcement of use taxes on individuals or “under-the-table” household help

Question 54

example of convience tax system

Answer 54

Employer withholds and remits taxes on your behalf

Question 55

use tax explain self asses

Answer 55

if u buy a good online, or out of state, and u are not charged sales tax, u are supposed to self assess and input it urself into ur taxes (most ppl don't do this)

Question 56

income effect

Answer 56

as tax rates go up, people will work harder to maintain same after-tax income.

Question 57

substitution effect

Answer 57

as tax rates go up, people will substitute nontaxable activities because the marginal value of taxable ones has decreased

Question 58

what revenue for-casting does our government use

Answer 58

dynamic forecasting