ACCT:3400 Introduction to
Taxation Kay Hagerty
Midterm 1 UIowa fully solved
& updated
Objectives of a tax system? - answer -raise revenue
-stimulate economy
-promote long term growth
-societal goals
-political goals
Tax Definition - answer Payment required by a government
unrelated to any specific benefit or service received from the
government
Key components of a tax - answer -Payment required
-Payment imposed by government agency (federal, state, local)
-Payment not tied directly to benefit received by the taxpayer.
Tax vs. Penalty? - answer Tax: encourages legal behavior and
discourages undesirable legal behavior
Penalty: Prevent illegal behavior, punishment for illegal behavior,
civil vs criminal
Calculation of Tax - answer tax base x tax rate
, Average Tax Rate - answer average level of taxation on each dollar
of taxable income
Effective Tax Rate - answer average rate of taxation on each dollar
of taxable & nontaxable income (total income)
Marginal Tax Rate - answer rate that applies to next dollar of
taxable income or deduction
Proportional Tax Rate - answer Flat tax-constant rate throughout
the whole base
Corporate: 21% Ex: Sales tax
Progressive Tax Rate - answer Imposes an increasing marginal tax
rate as tax basis increases (tax brackets)
Regressive Tax Rate - answer Imposes a decreasing marginal tax
rate as the tax base increases (social security and unemployment)
Who pays income taxes? - answer Individuals, corporations, estates
& trusts
Employment taxes - answer Half are paid by employer, half by
employee. Social Security tax rate: 12.4%
Medicare Tax: 2.9%
Total of 15.3% tax, maximum base of $142,800 in 2021
Who pays unemployment taxes? - answer Employer payroll
What is excise tax? - answer Excise tax is levied on the quantity of
goods sold
Taxation Kay Hagerty
Midterm 1 UIowa fully solved
& updated
Objectives of a tax system? - answer -raise revenue
-stimulate economy
-promote long term growth
-societal goals
-political goals
Tax Definition - answer Payment required by a government
unrelated to any specific benefit or service received from the
government
Key components of a tax - answer -Payment required
-Payment imposed by government agency (federal, state, local)
-Payment not tied directly to benefit received by the taxpayer.
Tax vs. Penalty? - answer Tax: encourages legal behavior and
discourages undesirable legal behavior
Penalty: Prevent illegal behavior, punishment for illegal behavior,
civil vs criminal
Calculation of Tax - answer tax base x tax rate
, Average Tax Rate - answer average level of taxation on each dollar
of taxable income
Effective Tax Rate - answer average rate of taxation on each dollar
of taxable & nontaxable income (total income)
Marginal Tax Rate - answer rate that applies to next dollar of
taxable income or deduction
Proportional Tax Rate - answer Flat tax-constant rate throughout
the whole base
Corporate: 21% Ex: Sales tax
Progressive Tax Rate - answer Imposes an increasing marginal tax
rate as tax basis increases (tax brackets)
Regressive Tax Rate - answer Imposes a decreasing marginal tax
rate as the tax base increases (social security and unemployment)
Who pays income taxes? - answer Individuals, corporations, estates
& trusts
Employment taxes - answer Half are paid by employer, half by
employee. Social Security tax rate: 12.4%
Medicare Tax: 2.9%
Total of 15.3% tax, maximum base of $142,800 in 2021
Who pays unemployment taxes? - answer Employer payroll
What is excise tax? - answer Excise tax is levied on the quantity of
goods sold
