Log out Go to App
Go to App

Learning Materials

Features

Discover

Chapter 7: Problem 11

Assess the following four tax policies in terms of the benefits principle versus the ability-to-pay principle. a. A tax on gasoline that finances maintenance of state roads b. An \(8 \%\) tax on imported goods valued in excess of \(\$ 800\) per household brought in on passenger flights c. Airline-flight landing fees that pay for air traffic control d. A reduction in the amount of income tax paid based on the number of dependent children in the household.

Short Answer

Expert verified
Answer: Policy C: Airline flight landing fees for air traffic control is considered fair according to both the benefits principle and the ability-to-pay principle.

Step by step solution

01

Policy A: Gasoline tax for road maintenance

Following the benefits principle, this tax policy seems fair because those who use the roads more (and consume more gasoline) will pay more in taxes, which in turn funds the maintenance of those roads. In terms of the ability-to-pay principle, it may not be as fair since people with lower income might rely more on driving and use more gasoline, causing them to pay a larger share of their income in taxes.
02

Policy B: 8% tax on imported goods valued over $800

Under the benefits principle, this tax policy might not align well since all consumers may not receive equal benefits from the tax on imported goods. However, according to the ability-to-pay principle, this policy can be considered fair because wealthier households are more likely to spend more on imported goods and would, therefore, pay a higher tax.
03

Policy C: Airline flight landing fees for air traffic control

This tax policy is in line with the benefits principle because those who use air travel (and indirectly create the demand for air traffic control) will bear the cost associated with it. In terms of the ability-to-pay principle, it is somewhat fair as well, since air travel is generally more expensive and utilized by individuals with greater financial resources.
04

Policy D: Income tax reduction based on the number of dependent children

From the perspective of the benefits principle, this policy may not be as fair since the number of dependent children in a household doesn't directly relate to the benefits they receive from public goods and services. However, according to the ability-to-pay principle, this policy is fair because households with more dependents often have greater expenses, and the tax reduction helps to reduce the financial burden on those families. In conclusion, each tax policy can be viewed from both the benefits principle and the ability-to-pay principle perspectives. Some policies align better with one principle than the other, and it's essential to consider both principles when assessing the fairness of tax policies.

Unlock Step-by-Step Solutions & Ace Your Exams!

  • Full Textbook Solutions

    Get detailed explanations and key concepts

  • Unlimited Al creation

    Al flashcards, explanations, exams and more...

  • Ads-free access

    To over 500 millions flashcards

  • Money-back guarantee

    We refund you if you fail your exam.

Start your free trial

Over 30 million students worldwide already upgrade their learning with Vaia!

One App. One Place for Learning.

All the tools & learning materials you need for study success - in one app.

Get started for free

Most popular questions from this chapter

Each of the following tax proposals has income as the tax base. In each case, calculate the marginal tax rate for each level of income. Then calculate the percentage of income paid in taxes for an individual with a pre-tax income of \(\$ 5,000\) and for an individual with a pre-tax income of \(\$ 40,000 .\) Classify the tax as being proportional, progressive, or regressive. (Hint: You can calculate the marginal tax rate as the percentage of an additional \(\$ 1\) in income that is taxed away.)a. All income is taxed at \(20 \%\). b. All income up to \(\$ 10,000\) is tax-free. All income above \(\$ 10,000\) is taxed at a constant rate of \(20 \%\). c. All income between \(\$ 0\) and \(\$ 10,000\) is taxed at \(10 \%\). All income between \(\$ 10,000\) and \(\$ 20,000\) is taxed at \(20 \%\). All income higher than \(\$ 20,000\) is taxed at \(30 \%\). d. Each individual who earns more than \(\$ 10,000\) pays a lump-sum tax of $\$ 10,000\(. If the individual's income is less than \)\$ 10,000$, that individual pays in taxes exactly what his or her income is. e. Of the four tax policies, which is likely to cause the worst incentive problems? Explain.

The U.S. government would like to help the Americar auto industry compete against foreign automaker: that sell trucks in the United States. It can do this by imposing an excise tax on each foreign truck sold in the United States. The hypothetical pre-tax demand anc supply schedules for imported trucks are given in the accompanying table. a. In the absence of government interference, what is the equilibrium price of an imported truck? The equilibrium quantity? Illustrate with a diagram. b. Assume that the government imposes an excise tax of \(\$ 3,000\) per imported truck. Illustrate the effect of this excise tax in your diagram from part a. How many imported trucks are now purchased and at what price? How much does the foreign automaker receive per truck? c. Calculate the government revenue raised by the excise tax in part b. Illustrate it on your diagram. d. How does the excise tax on imported trucks benefit American automakers? Whom does it hurt? How does inefficiency arise from this government policy?

All states impose excise taxes on gasoline. According to data from the Federal Highway Administration, the state of California imposes an excise tax of $\$ 0.40$ per gallon of gasoline. In 2013, gasoline sales in California totaled 18.4 billion gallons. What was California's tax revenue from the gasoline excise tax? If California doubled the excise tax, would tax revenue double? Why or why not?

The state needs to raise money, and the governor has a choice of imposing an excise tax of the same amount on one of two previously untaxed goods: the state can tax sales of either restaurant meals or gasoline. Both the demand for and the supply of restaurant meals are more elastic than the demand for and the supply of gasoline. If the governor wants to minimize the deadweight loss caused by the tax, which good should be taxed? For each good, draw a diagram that illustrates the deadweight loss from taxation.

You work for the Council of Economic Advisers, providing economic advice to the White House. The president wants to overhaul the income tax system and asks your advice. Suppose that the current income tax system consists of a proportional tax of \(10 \%\) on all income and that there is one person in the country who earns \(\$ 110\) million; everyone else earns less than \(\$ 100\) million. The president proposes a tax cut targeted at the very rich so that the new tax system would consist of a proportional tax of \(10 \%\) on all income up to \(\$ 100\) million and a marginal tax rate of \(0 \%\) (no tax) on income above \(\$ 100\) million. You are asked to evaluate this tax proposal. a. For incomes of \(\$ 100\) million or less, is this proposed tax system progressive, regressive, or proportional? For incomes of more than \(\$ 100\) million? Explain. b. Would this tax system create more or less tax revenue, other things equal? Is this tax system more or less efficient than the current tax system? Explain.
See all solutions

What do you think about this solution?

We value your feedback to improve our textbook solutions.

Study anywhere. Anytime. Across all devices.

Sign-up for free