Summary Test Bank: Spilker
Ind 2026: Chapter 1: An
Introduction to Tax
Tax - answer- is a payment required by a government that is unrelated to any specific
benefit or service received from the government.
What qualifies as a tax? - answer- General purpose: fund government agencies & their
operations (generate revenue)
Unlike fines/penalties: not meant to punish or prevent illegal behavior (does encourage
certain behaviors through deductions)
3 criteria: required, imposed by gov't, not tied directly to benefit received by taxpayer
Sin Taxes - answer- used to discourage certain legal behaviors by Supreme Court;
Imposed on those who do not have minimum essential health care coverage.
examples: relatively high surcharges on alcohol and tobacco products; the shared-
responsibility payment introduced by the Affordable Care Act
Affordable Care Act - answer- The ACA requires individuals to be covered by a health
insurance plan or to pay a tax—which is paid on the individual's income tax return.
Benefits from Paying Taxes - answer- national defense, a judicial system, law
enforcement, government-sponsored social programs, an interstate highway system,
public schools, and many other government-provided programs and services.
Earmarked Tax - answer- a tax imposed for a specific reason
Tax Formula - answer- Tax=Tax Rate x Tax Base
Tax Base - answer- defines what is actually taxed and is usually expressed in monetary
terms (fed/state income tax, sales tax, real estate, personal property tax)
Tax Rate - answer- determines the level of taxes imposed on the tax base and is
usually expressed as a percentage. (proportional, progressive, regressive)
Flat Tax - answer- a single tax apple to an entire tax base
Graduated Tax - answer- the base divided into a series of monetary amounts
, Brackets - answer- each successive bracket is taxed at a different (gradually higher or
gradually lower) percentage rate.
Marginal Tax Rate - answer- is the tax rate that applies to the next additional increment
of a taxpayer's taxable income (or deductions).
=change in tax/ change in taxable income
useful in tax planning
Average Tax Rate - answer- represents a taxpayer's average level of taxation on each
dollar of taxable income
=total tax/taxable income
used in budgeting tax expense as a portion of income
Effective Tax Rate - answer- represents the taxpayer's average rate of taxation on each
dollar of total income (sometimes referred to as economic income), including taxable
and nontaxable income.
=total tax/total income
better depiction of a taxpayer's tax burden
Three basic tax rate structures used to determine a tax: - answer- proportional,
progressive, and regressive.
Proportional Tax Rate - answer- also known as a flat tax, imposes a constant tax rate
throughout the tax base. As the tax base increases, the taxes paid increase
proportionally. Because this rate stays the same throughout all levels of the tax base,
the marginal tax rate remains constant and, in fact, equals the average tax rate (Tax
Base x Tax Rate)
ex: Sales Tax
Progressive Tax Rate - answer- imposes an increasing marginal tax rate as the tax
base increases. Thus as the tax base increases, both the marginal tax rate and the
taxes paid increase.
ex: federal and most state income tax
Regressive Tax Rate - answer- imposes a decreasing marginal tax rate as the tax base
increases. As the tax base increases, the taxes paid increase, but the marginal tax rate
decreases.
ex: Social Security tax and federal and state unemployment taxes
Taxes assessed by state and federal government: - answer- Sales Tax, Income Tax,
and Property Tax
Ind 2026: Chapter 1: An
Introduction to Tax
Tax - answer- is a payment required by a government that is unrelated to any specific
benefit or service received from the government.
What qualifies as a tax? - answer- General purpose: fund government agencies & their
operations (generate revenue)
Unlike fines/penalties: not meant to punish or prevent illegal behavior (does encourage
certain behaviors through deductions)
3 criteria: required, imposed by gov't, not tied directly to benefit received by taxpayer
Sin Taxes - answer- used to discourage certain legal behaviors by Supreme Court;
Imposed on those who do not have minimum essential health care coverage.
examples: relatively high surcharges on alcohol and tobacco products; the shared-
responsibility payment introduced by the Affordable Care Act
Affordable Care Act - answer- The ACA requires individuals to be covered by a health
insurance plan or to pay a tax—which is paid on the individual's income tax return.
Benefits from Paying Taxes - answer- national defense, a judicial system, law
enforcement, government-sponsored social programs, an interstate highway system,
public schools, and many other government-provided programs and services.
Earmarked Tax - answer- a tax imposed for a specific reason
Tax Formula - answer- Tax=Tax Rate x Tax Base
Tax Base - answer- defines what is actually taxed and is usually expressed in monetary
terms (fed/state income tax, sales tax, real estate, personal property tax)
Tax Rate - answer- determines the level of taxes imposed on the tax base and is
usually expressed as a percentage. (proportional, progressive, regressive)
Flat Tax - answer- a single tax apple to an entire tax base
Graduated Tax - answer- the base divided into a series of monetary amounts
, Brackets - answer- each successive bracket is taxed at a different (gradually higher or
gradually lower) percentage rate.
Marginal Tax Rate - answer- is the tax rate that applies to the next additional increment
of a taxpayer's taxable income (or deductions).
=change in tax/ change in taxable income
useful in tax planning
Average Tax Rate - answer- represents a taxpayer's average level of taxation on each
dollar of taxable income
=total tax/taxable income
used in budgeting tax expense as a portion of income
Effective Tax Rate - answer- represents the taxpayer's average rate of taxation on each
dollar of total income (sometimes referred to as economic income), including taxable
and nontaxable income.
=total tax/total income
better depiction of a taxpayer's tax burden
Three basic tax rate structures used to determine a tax: - answer- proportional,
progressive, and regressive.
Proportional Tax Rate - answer- also known as a flat tax, imposes a constant tax rate
throughout the tax base. As the tax base increases, the taxes paid increase
proportionally. Because this rate stays the same throughout all levels of the tax base,
the marginal tax rate remains constant and, in fact, equals the average tax rate (Tax
Base x Tax Rate)
ex: Sales Tax
Progressive Tax Rate - answer- imposes an increasing marginal tax rate as the tax
base increases. Thus as the tax base increases, both the marginal tax rate and the
taxes paid increase.
ex: federal and most state income tax
Regressive Tax Rate - answer- imposes a decreasing marginal tax rate as the tax base
increases. As the tax base increases, the taxes paid increase, but the marginal tax rate
decreases.
ex: Social Security tax and federal and state unemployment taxes
Taxes assessed by state and federal government: - answer- Sales Tax, Income Tax,
and Property Tax
