Assignment:
Please choose the best response for the following questions.
1. According to the benefit principle of taxation:
a. taxes should be distributed according to peoples' ability to pay.
b. the progressive income tax represents the ideal way of distributing taxes among a nation's citizens.
c. user charges are an ideal source of finance for government-produced goods and services.
d. flat-rate taxes are the only fair type, since all citizens benefit equally from provision of public goods.
2. If horizontal equity is achieved in taxation:
a. individuals of equal economic capacity will pay equal taxes.
b. vertical equity will also be achieved.
c. a flat-tax will be used.
d. the tax system will not result in losses of efficiency in markets.
3. The tax base of a payroll tax is:
a. consumer expenditures.
b. labor income.
c. interest income.
d. a combination of expenditures, labor income, and interest income.
4. What is the primary reason the United States manages to collect a high percentage of income tax assessed on its wage-earning citizens?
a. The IRS audits a large percentage of tax returns and almost always catches those who attempt to evade taxes.
b. Penalties for tax evasion are so severe that citizens don't attempt to cheat the IRS.
c. The income tax withholding system requires employers to withhold taxes from wages and remit those payments to the government.
d. The United States actually does not manage to collect a high percentage of income tax assessed on wage earners.
5. Which of the following is not necessarily an impact of persistent budget deficits?
a. The tax burden is shifted from current to future taxpayers.
b. Governments can accomplish current projects that have large social benefits, without raising taxes.
c. The portion of the budget allocated for interest payments increases as a fraction of total spending.
d. The absolute amount of government debt is increased.
6. Firms are permitted to transfer patents and trademarks to subsidiaries in other countries without charging them for the intellectual property (IP). What is the most important impact of this practice from a financial standpoint?
a. Firms can reduce their US tax liability by transferring profits from high tax countries to low tax countries,
b. Firms can reduce their US tax liability by transferring profits from low tax countries to high tax countries.
c. Firms can reduce their US tax liability by transferring patents from low tax countries to high tax countries.
d. Firms cannot benefit financially from moving IP from country to country.
7. The incidence, or true burden of a tax:
a. is not dependent of the economic actor upon which the tax is imposed.
b. falls most heavily on the buyer if price elasticity of demand is higher than price elasticity of supply.
c. falls most heavily on the seller if price elasticity of demand is zero.
d. is paid entirely by the seller if supply elasticity is infinite.
8. If government officials were most concerned about protecting consumers from higher prices, they would favor imposing taxes on goods:
a. that are necessities.
b. that are luxuries.
c. for which the tax is likely to be forward shifted.
d. for which the tax cannot be backward shifted.
9. Which of the following is true of the omnibus government funding bill passed by Congress in September and signed into law on 9/28/2018?
a. It provides funding for all government agencies up to September 30, 2019.
b. It includes the "Dream Act," a provision that allows children brought illegally into the United States to obtain citizenship after 10 years of residency.
c. It provides appropriations for less than half of the government's cabinet departments, with the remainder funded only until a short-term CR expires on December 8th.
d. It includes full funding for Donald Trump's border wall, with construction to begin on or before January 1, 2019.
10. If government were to levy taxes only on goods and services supplied by monopolies, what would be the impact on excess burden across the economy?
a. Excess burden would increase, as monopolies extracted more consumer surplus.
b. Excess burden would be reduced, as monopoly excess burden is inherently lower.
c. Excess burden would increase, since monopoly quantities are chosen along the MR curve, while competitive quantities are set along the demand curve.
d. There would be no change in excess burden.
Essay Questions
Directions: Please answer the following questions with a brief essay of 3 to 4 paragraphs per question. I expect you to provide a well-organized and convincing narrative, including proper sentence structure, grammar, and punctuation. Repeating the question as part of your answer is unlikely to improve the quality of your response. I will also not look favorably on bulleted lists, sentence fragments, or other short-hand devices more suitable to an outline than a short essay.
11. What effects do government borrowing and deficit finance have on the distribution of income and well-being? In your answer discuss the intergenerational effects of deficits and the impact of deficits on saving, investment, interest rates, and economic growth.
12. Explain how our current income tax system could easily be converted into a system which taxes consumption. How would these two tax systems impact savings and investment? Discuss at least one distributional impact from this change.