Question

C) only rich people D) all s 9) Suppose you purchased 100 shares of stock in 2000 for $25 a share and you sell them today for $509) a share. If the capital gains tax is 28 percent, your tax liability is A) $70. B) $700. C) $2500 D) indeterminate without knowing the inflation rate.. 10) Corporate profits are A) taxed three 10) times-once by the corporate tax system, again by the personal tax system, and again as capital gains. B) taxed only when a stockholder sells his or her shares of stock C) taxed at too low a rate. D) taxed twice-once by the corporate tax system, and again by personal tax system when they are paid to stockholders as dividends. 11) Dynamic tax analysis is based on the recognition that as tax rates are increased. A) tax revenue collections will continually increase. B) tax revenue collections will increase at a faster rate than the tax rate change. C) tax revenue collections will change at the same rate as the tax rates. D) tax revenue collections will eventually decline. 2) Assume that Mr. Smith's income increased from $40,00 last year to $45,000 this year and that he paid an additional $2,000 in taxes. This would indicate that his marginal tax rate is A) 30 percent B) 25 percent C) 40 percent D) 10 percent.

Answer 1

Answer 9

We purchased 100 Shares at 25 dollars each in 2000 and sold them in 50 dollars each therefore total gain will (50-25) dollars per share

Total Gain will be 25 dollars * 100 share = 2500

Capital Gain Tax is 28%

Thus total tax liability will be 0.28* 2500 = 700

Answer is option B i.e. 700

Answer 10

Corporate profits are taxed twice-once by the corporate tax system and again by personal tax system when they are paid to stockholders as dividens

Answer is option d

Answer 11

Answer is option A i.e. tax revenue collections will continuously increase.

Dynamic tax analysis assumes that tax collection will increase as the economy drives more capital income, wages and salaries.

Answer 12

Suppose tax rate is t and income being Y

Total tax revenue(T) will be tY

T =tY

Differentiate T with respect to Y

dT/dY = t

t is marginal tax rate

Now,

Change in income = $5000 (45000-40000)

change in tax (dT)= 2000

Therefore,

marginal tax rate (t) = 2000/5000 =0.4 or 40%

Therefore answer is option c i.e. 40%