Question

which of the following statements is (are) correct?
(x) If the rich pay more in taxes than the poor, the tax system must be progressive.
(y) When the marginal tax rate exceeds the average tax rate, the tax is progressive and when the marginal tax rate equals the average tax rate for all levels of income, the tax is proportional.
(z) A general sales tax on food is regressive when low-income taxpayers spend a larger proportion of their income on food than high-income taxpayers.
A. (x), (y) and (z)
B. (x) and (y) only
C. (x) and (z) only
D. (y) and (z) only
E. (z) only

Suppose a poor family has three children in public school and a rich family has two children in private school. Which of the following statements is (are) correct?
(x) The benefits principle suggests the benefits of public school exceed those of private school
(y) The ability-to-pay principle would suggest that the rich family should pay more in taxes to pay for public education than the poor family.
(z) The benefits principle would suggest that the poor family should pay more in taxes to pay for public education than the rich family.
A. (x), (y) and (z)
B. (x) and (y), only
C. (x) and (z), only
D. (y) and (z), only
E. (x) only

which of the following statements is (are) correct?
(x) Vertical equity and horizontal equity are associated with the ability-to-pay principle of taxation.
(y) Two couples, one married and one not, who have the same income and are otherwise exactly the same, but face different tax liabilities suggests that the “marriage tax” causes a violation of horizontal equity.
(z) Two families, the Goldsmiths and the Copperfields, live in Brassville, N.C., and have identical incomes. The Goldsmith family deducts $5,000 from their taxable income for mortgage interest paid during the year while the Copperfield family rents and lives in an apartment and is not eligible for a mortgage-interest deduction. This situation demonstrates a violation of vertical equity.
A. (x), (y) and (z)
B. (x) and (y) only
C. (x) and (z) only
D. (y) and (z) only
E. (x) only

Answer 1

1. x,y and z are true.

A progressive tax is a tax in which the tax rate increases as the taxable base amount increases.The term “progressive” describes a distribution effect on income or expenditure where the average tax rate is less than marginal tax. A proportional tax is a tax imposed so that the tax rate is fixed, with no change as the taxable base amount increases or decreases. In this case marginal tax is equal to average tax.A regressive tax is one whose rate increases as the payer's income decreases.Example Sales Tax on food.

2. Y and Z are true. The ability to pay principle states that people who have higher income and have more resources should pay more tax. So, rich family having more resources should pay more in taxes. The benefits principle states that people using more of government resources should pay more taxes. As poor family with three children use more of public school should pay more taxes.

3. X and Y are True. Vertical equity says that as the income increases the tax paid should also increase. Horizontal equity says that people in the same income group will pay the same amount of tax. Both are part of ability to pay principle which talks about equality. Marriage tax cause violation of horizontal equity. Horizontal equity holds that married couples with equal income should pay the same income taxes. Married couple pool their income jointly when they pay tax and have to pay higher tax as compared to if they were single.