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Federal Taxation I Chapter 1 SOLUTIONS MANUAL Taxation of Individuals and Business Entities 2011 Edition Brian Spilker. Q1. Compare the federal income tax to sales taxes using the ldquocertaintyrdquo criterion. Q2 Many years ago a famous member of Congress proposed eliminating federal income tax withholding. What criterion for evaluating tax systems did this proposal violate? What would likely have been the result of eliminating withholding? Q3 ldquoThe federal income tax scores very high on the economy criterion because the current IRS budget is relatively low compared to the costs of a typical collection agency.rdquo Explain why this statement may be considered wrong. Q4 Campbell, a single taxpayer, earns $400,000 in taxable income and $2,000 in interest from an investment in State of New York bonds. Using the U.S. tax rate schedule, 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? Q5 Using the facts in the previous problem, if Campbell earns an additional $15,000 of taxable income, what is her marginal tax rate on this income? What is her marginal rate if, instead, she had $15,000 of additional deductions? Q6 Jorge and Anita, married taxpayers, earn $150,000 in taxable income and $40,000 in interest from an investment in City of Heflin bonds. Using the U.S. tax rate schedule for married filing jointly, how much federal tax will they owe? What is their average tax rate? What is their effective tax rate? What is their current marginal tax rate? Q7 Using the facts in the previous problem, if Jorge and Anita earn an additional $100,000 of taxable income, what is their marginal tax rate on this income? What is their marginal rate if, instead, they reported an additional $100,000 in deductions? Q8 In reviewing the tax rate schedule for married filing jointly, Jorge and Anita note that the tax on $150,000 is $26,687.50 plus 28 percent of the taxable income over $137,300. What does the $26,687.50 represent? Q9 Scot and Vidia, married taxpayers, earn $240,000 in taxable income and $5,000 in interest from an investment in City of Tampa bonds. Using the U.S. tax rate schedule for married filing jointly, how much federal tax will they owe? What is their average tax rate? What is their effective tax rate? What is their current marginal tax rate? Q10 Using the facts in the previous problem, if Scot and Vidia earn an additional $70,000 of taxable income, what is their marginal tax rate on this income? How would your answer differ if they, instead, had $70,000 of additional deductions? Q11 Melinda invests $200,000 in a City of Heflin bond that pays 6 percent interest. Alternatively, Melinda could have invested the $200,000 in a bond recently issued by Surething, Inc. that pays 8 percent interest with similar risk and other nontax characteristics to the City of Heflin bond. Assume Melindarsquos marginal tax rate is 25 percent. Q12 Hugh has the choice between investing in a City of Heflin bond at 6 percent or a Surething bond at 9 percent. Assuming that both bonds have the same nontax characteristics and that Hugh has a 40 percent marginal tax rate, in which bond should he invest? Q13 Fergie has the choice between investing in a State of New York bond at 5 percent and a Surething bond at 8 percent. Assuming that both bonds have the same nontax characteristics and that Fergie has a 30 percent marginal tax rate, in which bond should she invest? Q14 Using the facts in the previous problem, what interest rate does the state of New York need to offer to make Fergie indifferent between investing in the two bonds? Q15 Given the following tax structure, what minimum tax would need to be assessed on Shameika to make the tax progressive with respect to average tax rates? Q16 Using the facts in the previous problem, what minimum tax would need to be assessed on Shameika to make the tax progressive with respect to effective tax rates? Q17 Using the facts from the previous problem, what will happen to the governmentrsquos tax revenues if Song chooses to spend more time pursuing her other passions besides work in response to the tax rate change and earns only $75,000 in taxable income? What is the term that describes this type of reaction to a tax rate increase? What types of taxpayers are likely to respond in this manner? Q18 Given the following tax structure, what tax would need to be assessed on Venita to make the tax horizontally equitable? Q19 Using the facts in the previous problem, what is the minimum tax that Pedro should pay to make the tax structure vertically equitable based on the tax rate paid? This would result in what type of tax rate structure? Q20 Using the facts in the previous problem, what is the minimum tax that Pedro should pay to make the tax structure vertically equitable with respect to the amount of tax paid? This would result in what type of tax rate structure? Q21 Consider the following tax rate structure. Is it horizontally equitable? Why or why not? Is it vertically equitable? Why or why not? Q22 Consider the following tax rate structure. Is it horizontally equitable? Why or why not? Is it vertically equitable? Why or why not? Q23 Consider the following tax rate structure. Is it horizontally equitable? Why or why not? Is it vertically equitable? Why or why not? Q24 Lorenzo is considering starting a trucking company either in Texas or Oklahoma. He will relocate his family, which includes his wife, children, and parents, to reside in the same state as his business. What types of taxes may influence his decision of where to locate his business? Answer by Matt D. (Purchased 4 times and rated ) 