Chapter 17

Question 1

What are 4 reasons the government taxes and spends money?

Answer 1

1. Raise revenues to pay for public goods
2. Correct other market failures
3. Redistribute income to address fairness issues
4. Finance operations of government

Question 2

What three sources of income account for more than 90% of the government’s revenue?

Answer 2

1. Individual income tax
2. Social Security and Medicare taxes
3. Corporate income tax

Question 3

What is the single largest source of revenue for the federal government?

Answer 3

The individual income tax

Question 4

What are two ways the government can address equity issues?

Answer 4

1. Transfer payments

2. The tax structure

Question 5

What is the marginal tax rate?

Answer 5

the tax rate paid on an additional dollar of income

Question 6

What is the average tax rate?

Answer 6

the total tax payment divided by total income

Question 7

What is an excise tax?

Answer 7

Excise taxes are taxes paid when purchases are made on a specific good, such as gasoline

Question 8

What determines the incentive to work additional hours?

Answer 8

The marginal tax rate

Question 9

What is the Alternative Minimum Tax?

Answer 9

A separate income tax code to prevent the rich from not paying income taxes. The original goal was to make sure that it would not be possible for anyone to avoid all income tax

Question 10

What is interest income?

Answer 10

eg. interest from a savings account

Question 11

What are dividends?

Answer 11

Regular income payments from corporate earning

Question 12

What are capital gains?

Answer 12

Asset price appreciation

Question 13

How is interest income taxed?

Answer 13

The same as ordinary income

Question 14

What is carried interest?

Answer 14

income flowing to the general partner of a private investment fund

Question 15

What is the FICA tax?

Answer 15

Federal Insurance Contributions Act tax

Question 16

What does the FICA tax do?

Answer 16

It funds Social Security benefits

Question 17

How is medicare financed?

Answer 17

Partly out of general revenues and partly out of special payroll taxes

Question 18

What is the corporate income tax rate?

Answer 18

35%

Question 19

What is a flat tax?

Answer 19

a tax that has a constant tax rate

Question 20

What is progressive tax?

Answer 20

a tax that has a higher tax rate on people with higher incomes

Question 21

What is a regressive tax?

Answer 21

has higher taxes on people with lower incomes

Question 22

Almost two thirds of the US federal budget is spent on what 4 programs?

Answer 22

1. Social Security
2. Defense
3. Medicare
4. Medicaid

Question 23

What is the largerst government program in the world?

Answer 23

Social Security

Question 24

How are social security benefits defined?

Answer 24

They are defined by a complex formula depending on years worked, average earnings, marital status, the year you retire, and at what age.

Question 25

What does medicare do?

Answer 25

It reimburses the elderly for many of their medical expenses

Question 26

What does medicaid do?

Answer 26

It covers the poor and some disabled

Question 27

Social Security and Medicare transfer wealth to who?

Answer 27

The elderly

Question 28

What does the Earned Income Tax Credit(EITC) do?

Answer 28

pays poor people based on their earnings

Question 29

What does unemployment insurance do?

Answer 29

makes payments to people who are out of work

Question 30

What does the Temporary Assistance for Needy Families do?

Answer 30

makes payments to families with children

Question 31

What is the national debt held by the public?

Answer 31

all federal debt held outside the US govt