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Exam 1: An Introduction to Tax

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Question 61

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Which of the following statements is true?

A) Municipal bond interest is subject to explicit federal tax
B) Municipal bond interest is subject to implicit tax
C) Municipal bonds typically pay a higher interest rate than corporate bonds with similar risk
D) All of these are true
E) None of these is true

F) All of the above
G) C) and E)

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Question 62

Multiple Choice

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Which of the following represents the largest percentage of state tax revenue?

A) Sales tax
B) Individual income tax
C) Other
D) Property tax
E) None of these

F) C) and D)
G) A) and D)

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Question 63

Multiple Choice

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The city of Granby, Colorado recently enacted a 1.5% surcharge on vacation cabin rentals that will help pay for the city's new elementary school. This surcharge is an example of ________.

Estimated tax payments are one way the federal income tax system addresses the "certainty" criterion in evaluating tax systems.

The main difficulty in calculating an income tax is determining the correct amount of the tax base.

In a proportional (flat) tax rate system, the marginal tax rate will always equal the average tax rate.

Jed Clampett is expanding his family-run beer distributorship into Georgia or Tennessee. His parents began the business many years ago and now three generations of Clampetts work in the family business. Jed will relocate the entire family (his parents, spouse, children, etc.) to either state after the move. What types of taxes may influence his decision of where to locate his business? What non-tax factors may influence the decision?

Nelson has the choice between investing in a city of Fruithurst bond at 4% or a J.B. Ribs, Inc. bond at 6.5%. Assuming that both bonds have the same non-tax characteristics and that Nelson has a 40% marginal tax rate, in which bond should he invest? What interest rate offered by J.B. Ribs, Inc. would make Nelson indifferent between investing in the two bonds?

Which of the following federal government actions would make sense if a tax system fails to provide sufficient tax revenue?

Heather, a single taxpayer who files as a head of household, earns $60,000 in taxable income and $5,000 in interest from an investment in city of Oxford Bonds. Using the U.S. tax rate schedule for year 2014, how much federal tax will she owe? What is her average tax rate? What is her effective tax rate? What is her current marginal tax rate? If Heather has an additional $20,000 of tax deductions, what is her marginal tax rate on these deductions? (Round the tax rates to 2 decimal places, e.g., .12345 as 12.35%)

Which of the following is not an example of a graduated tax rate structure?