Chapter 1 Problem Solutions

Chapter 1 Problem Solutions - Chapter 1 Recommended Problem...

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1 Chapter 1 Recommended Problem Solutions 5) The building permit is not considered a tax because $300 payment is directly linked to a benefit that they received (i.e., the ability to build a house). 12) Relative to the average tax rate, the effective tax rate provides a better depiction of a taxpayer’s tax burden because it depicts the taxpayer’s total tax paid as a ratio of the sum of both taxable and nontaxable income earned. 21) The tax base for sales taxes is retail sales of goods (and some services). The tax base for the use tax is the retail price of goods owned, possessed or consumed within a state that were not purchased within the state (e.g., goods purchased over the internet). 23) An explicit tax is a tax that is directly imposed by a government unit and easily quantified. Implicit taxes are the reduced rates of pretax return that a tax-favored asset produces (e.g., the lower pretax rate of return earned by tax exempt municipal bonds). Although implicit taxes are real and equally important in understanding our tax system, they are difficult to quantify.
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