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Unformatted text preview: Chapter 01 - Introduction to Taxation, the Income Tax Formula, and Form 1040EZ CHAPTER 1 Introduction to Taxation, the Income Tax Formula, and Form 1040EZ Discussion Questions 1. (Introduction) Give a brief history of the income tax in the United States. Answer: The first federal income tax was enacted in 1861 to help finance the Civil War and was discarded soon thereafter. In 1894, another income tax was promulgated by Congress to raise additional tax revenue and to expand the sources of revenue. In 1895, the Supreme Court ruled that the federal income tax was unconstitutional. In 1913, the sixteenth Amendment to the U.S. Constitution was enacted. This amendment gave Congress the power to levy and collect taxes. In 2006, the federal government collected over $1 trillion in individual income taxes. 2. (Introduction) For tax year 2006, what proportions of individual income tax returns were filed on a Form 1040EZ, Form 1040A and Form 1040? What proportion were electronically filed? Answer: In 2006, 16.3% of individual income tax returns were filed using a Form 1040EZ, 23.1% using a Form 1040A, and 60.6% using a Form 1040. Electronically-filed tax returns were 57.9% of total returns. 3. Name the three types of tax rate structures and give an example of each. Answer: Progressive U.S. federal income tax Proportional flat-tax usually levied on property or sales at the state or local level Regressive Social security tax 4. What is a progressive tax ? Why do you think the government believes it is a more equitable tax than, say, regressive tax or proportional tax? Answer: A progressive rate structure is a rate structure where the tax rate increases as the tax base increases. The progressive rate structure is viewed as more equitable because the amount of tax paid varies with the ability to pay. For 1-1 Chapter 01 - Introduction to Taxation, the Income Tax Formula, and Form 1040EZ example, the government believes that as an individual makes more income, a smaller percentage of that income is needed to buy necessary living supplies and thus more income is available to pay taxes. 5. What type of tax is a sales tax? Explain your answer. Answer: The sales tax is a proportional tax. A proportional tax is a tax where the tax rate remains the same regardless of the tax base. Most county or state sales tax rates are the same regardless of the amount of sales upon which the tax is levied. With a proportional tax, the marginal tax rate and average tax rate are always the same. 6. What is the definition of tax base, and how does it affect the amount of tax levied? Answer: The tax base is the dollar amount upon which the tax rate is applied in order to determine the actual tax. Income, dollar sales, and property value are the more common tax bases in the United States....
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- Spring '11