Topic 1 Tax Structures Flashcards
Fill in the blanks & select right option:
a _______ required by a __________ that is (unrelated )/(specific) to a benefit or service received from the government.
payment
government
unrelated
what is the basic formula for calculating tax?
tax = tax base x tax rate
what is tax rate?
the level of tax imposed on the tax base
what is tax base?
what is being taxed
the tax rate that applies to the next additional increment of a taxpayer’s taxable income is know as what?
marginal tax rate
the taxpayer’s average level of taxation on each dollar of taxable income is called what?
average tax rate
the taxpayer’s average rate of taxation on each dollar of total income (both taxable and non-taxable) is the what?
effective tax rate
formula for calculating the marginal tax rate
🔺tax/🔺income
formula for calculating the average tax rate
total tax/taxable income
formula for calculating the effective tax rate
total tax/total income
which tax rate provides the best depiction of the tax payer’s burden?
effective tax rate
what tax rate structure is constant tax rate throughout the tax base?
proportional or flat
what tax rate structure has an increasing marginal rate as the tax bas increases?
progressive
what tax rate structure has a decreasing marginal tax rate as the tax bas increases?
regressive
which tax rate structure do we currently have under the Tax Cuts & Jobs Act?
progressive
what type of tax rate structure is applied to sales? individual income? unemployment? corporate income?
sales - proportional
individual income - progressive
unemployment - regressive
corporate income - proportional
What tax generates the largest revenue in the US?
income tax
Categorize each tax as either federal or state/local:
- income
- employment
- property (ad valorem)
- transfer
- excise
- unemployment
- sales & use
- income: both federal and state/local
- employment: federal
- property (ad valorem): state/local
- transfer: federal
- excise: both federal and state/local
- unemployment: federal
- sales & use: state/local
What is the 2nd largest revenue generating tax for the US?
employment/unemployment
How are excise taxes imposed?
by the quantity of products sold (i.e. gasoline)
What is the 3rd larges revenue generating tax?
excise taxes
How are transfer taxes levied?
by the fair market value of wealth transfer by death or gift
What is ad valorem?
a tax base that is the fair market value of the property
what tax is imposed on the retail price of goods owned, possessed, or consumed within a state that were not purchased there?
use tax
indirect taxes that result from a tax advantage the government grants to certain transaction are called what?
implicit taxes
the reduced before-tax rate of return that a tax-favored asset produces because of its tax advantaged status is known as what?
implicit taxes
How to calculate implicit tax
choice 1 vs choice 2
amount of interest received before-tax and amount of interest total after tax. calculate rate after tax. figure the difference.
What tax system quality assesses the aggregate size of the tax revenues that must be generated and making sure that the tax system provides these revenues?
Sufficiency
How is sufficiency estimated?
static or dynamic forecasting
(static/dynamic) forecasting ignores how the taxpayer may change their behavior to the proposed change in law
static
(static/dynamic) forecasting takes into account the taxpayer response to the proposed change in law
dynamic
what tax system quality is how the tax burden should be distributed across taxpayers?
equity
how is equity evaluated?
by horizontal and vertical equity
(horizontal/vertical) equity means that 2 taxpayers in the same situation will pay the same tax
horizontal
(horizontal/vertical) equity means that when taxpayers have a greater ability to pay more tax, they will
vertical
What tax system quality means that taxpayers should be able to determine when to pay the tax, where to pay the tax, and how to determine the tax?
certainty
What tax system quality states a tax system should be designed to be collected with undue hardship to the taxpayer?
convenience
What tax system quality states that a tax system should minimize the compliance and administration costs associated with the tax system?
economy
