Chapter 1 An Introduction to Tax

Chapter 1
An Introduction to
Tax

SOLUTIONS
MANUAL

Discussion
Questions

(1)
[LO1] Jessica’s friend Zachary once
stated that he couldn’t understand why someone would take a tax course. Why is this a rather naïve view?

[LO1] What are some aspects of business that require knowledge of taxation? What are some aspects of personal finance
that require knowledge of taxation?

(2)
[LO1] Describe some ways in which taxes affect the political process in
the United States.

(3)
[LO2] Courtney recently received a speeding
ticket on her way to the university. Her
fine was $200. Is this considered a
tax? Why or why not?

(4)
[LO2] Marlon and Latoya recently
started building a house. They had to
pay $300 to the county government for a building permit. Is the $300 payment a tax? Why or why not?

(5)
[LO2] The city of Birmingham
recently enacted a 1 percent surcharge on hotel rooms that will help pay for
the city’s new stadium. Is this a
tax? Why or why not?

(6)
[LO2] As noted in Example 1-2,
tolls, parking meter fees, and annual licensing fees are not considered
taxes. Can you identify other fees that
are similar?

(7)
[LO2] If the general objective
of our tax system is to raise revenue, why does the income tax allow deductions
for charitable contributions and retirement plan contributions?

(8)
[LO2] One common argument for
imposing so-called sin taxes is the social goal of reducing demand for such products.
Using cigarettes as an example, is there a segment of the population
that might be sensitive to price and for whom high taxes might discourage
purchases?

(9)
[LO3] Dontae stated that he didn’t want to
earn any more money because it would “put him in a higher tax bracket.” What is wrong with Dontae’s reasoning?

(10)
[LO3] Describe the three
different tax rates discussed in the chapter and how taxpayers might use them.

(11)
[LO3] Which is a more
appropriate tax rate to use to compare taxpayers’ tax burdens – the average or
the effective tax rate? Why?

(12)
[LO3] Describe the differences
between a proportional, progressive, and regressive tax rate structure.

(13)
[LO3] Arnold and Lilly have
recently had a heated discussion about whether a sales tax is a proportional
tax or a regressive tax. Lilly argues
that a sales tax is regressive. Arnold counters
that the sales tax is a flat tax. Who is
correct?

(14)
[LO4] Which is the largest tax
collected by the U.S. government? What
types of taxpayers are subject to this tax?

(15)
[LO4] What is the tax base for
the Social Security and Medicare taxes for an employee or employer? What is the tax base for Social Security and
Medicare taxes for a self-employed individual?
Is the self-employment tax in addition to or in lieu of federal income
tax?

(16)
[LO4] What are unemployment
taxes?

(17)
[LO4] What is the
distinguishing feature of an excise tax?

(18)
[LO4] What are some of the
taxes that currently are unique to state and local governments? What are some of the taxes that the federal,
state, and local governments each utilize?

(19)
[LO4] The state of Georgia
recently increased its tax on a pack of cigarettes by $2.00. What type of tax is this? Why might Georgia choose this type of tax?

(20)
[LO4] What is the difference
between a sales tax and a use tax?