Chapter 9

Question 1

sin tax

Answer 1

a relatively high tax designed to raise revenue and reduce consumption of a socially undesirable product such as liquor or tobacco

Question 2

incidence of a tax

Answer 2

final burden of the tax

Question 3

tax loopholes

Answer 3

exceptions or oversights in the tax law that allow some people and businesses to avoid paying taxes

Question 4

individual income tax

Answer 4

the tax on people’s earnings

Question 5

sales tax

Answer 5

a general tax levied on most consumer purchases

Question 6

efficiency

Answer 6

tax should be relatively easy to administer and reasonably successful at generating revenue

Question 7

Benefit Principle of Taxation

Answer 7

those who benefit from government goods and services should pay in proportion to the amount of benefits they receive

Question 8

Ability to Pay Principle of Taxation

Answer 8

the belief that people should be taxed according to their ability to pay

Question 9

Proportional Tax

Answer 9

same % of taxation on everyone

Question 10

average tax rate

Answer 10

total taxable income divided by the total revenue

Question 11

Progressive Tax

Answer 11

higher % rate of taxation on people with higher income

Question 12

marginal tax rate

Answer 12

the tax rate that applies to the next dollar of taxable income

Question 13

Regressive Tax

Answer 13

higher % rate of taxation on people with lower income

Question 14

payroll withholding system

Answer 14

a system that requires an employer to automatically deduct income taxes from an employee’s paycheck and send it directly to the gov’t

Question 15

IRS

Answer 15

branch of US Treasury Department in charge of collecting taxes

Question 16

tax return

Answer 16

an annual report to the IRS summarizing total income, deductions and the taxes withheld by employers

Question 17

indexing

Answer 17

an upward revision of the tax brackets to keep workers from paying more in taxes just because of inflation

Question 18

FICA

Answer 18

tax levied on both employers and employees to pay for Social Security and medicare

Question 19

Medicare

Answer 19

a federal health care program available to all senior citizens

Question 20

Payroll Taxes

Answer 20

taxes deducted from your paycheck

Question 21

corporate income taxes

Answer 21

the tax a corporation pays on its profits

Question 22

excise tax

Answer 22

a tax on the manufacture or sale of selected items

Question 23

luxury good

Answer 23

good for which demand increases faster than income when income rises

Question 24

estate tax

Answer 24

tax the gov’t levies on the transfer of property when a person dies

Question 25

gift tax

Answer 25

tax on donations of money or wealth and is by the person who makes the gift

Question 26

customs duty

Answer 26

a charge levied on goods brought in from other countries

Question 27

user fees

Answer 27

charges levied for the use of a good or service

Question 28

State Government Revenue Sources (5)

Answer 28

- Intergovernmental Revenues - Taxes and Fees - Interest earnings on surplus funds - tuition of colleges - corporate income tax

Question 29

Intergovernmental Revenues

Answer 29

funds collected by one level of gov't that are distributed to another level of gov't for expenditures

Question 30

Local Government Revenue Sources (3)

Answer 30

- Intergovernmental Revenues - Property Taxes - Earnings of public utilities and state owned liquor stores

Question 31

Property Taxes

Answer 31

a tax on tangible and intangible possessions

Question 32

tax assessor

Answer 32

the person who assigns value to property for tax purposes

Question 33

payroll withhold statement

Answer 33

the summary statement attached to a paycheck that summarizes income, tax withholdings, etc.