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Chapter 5 Review Exercises

Chapter 5 Review Exercises
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  • 1. Massachusetts State Income Tax

    Massachusetts has a flat income tax with a rate of 5.3%. Determine how much state income tax the person owes.

    A person who lives in Massachusetts has a taxable income of $45,000.

    • Worked-Out Solution

      The income tax for the person is

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     _    _     _____    ______    _    _     _  _   
    | \  / ||  |  ___|| |      \\ | || | ||  | \| || 
    |  \/  ||  | ||__   |  --  // | || | ||  |  ' || 
    | .  . ||  | ||__   |  --  \\ | \\_/ ||  | .  || 
    |_|\/|_||  |_____|| |______//  \____//   |_|\_|| 
    `-`  `-`   `-----`  `------`    `---`    `-` -`  
                                                     
    
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  • 2. Massachusetts State Income Tax

    Massachusetts has a flat income tax with a rate of 5.3%. Determine how much state income tax the person owes.

    A person who lives in Massachusetts has a taxable income of $1,000,000.

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     __   __     ___     _____     __   __            
     \ \\/ //   / _ \\  |  __ \\   \ \\/ //     ___   
      \   //   | / \ || | |  \ ||   \ ` //     /   || 
      / . \\   | \_/ || | |__/ ||    | ||     | [] || 
     /_//\_\\   \___//  |_____//     |_||      \__ || 
     `-`  --`   `---`    -----`      `-`'       -|_|| 
                                                 `-`  
    
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  • 3. Massachusetts State and Local Taxes

    The income for a family in the middle 20% is $53,000. How much, in dollars, does this family pay for each type of tax?

    • Worked-Out Solution
      yellow square Sales & excise taxes:
      orange square Property taxes:
      blue square Income taxes:
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      ______   __   __   _    _     _____     ______  
     /_____//  \ \\/ // | \  / ||  |  ___||  /_____// 
     `____ `    \ ` //  |  \/  ||  | ||__    `____ `  
     /___//      | ||   | .  . ||  | ||__    /___//   
     `__ `       |_||   |_|\/|_||  |_____||  `__ `    
     /_//        `-`'   `-`  `-`   `-----`   /_//     
     `-`                                     `-`      
    
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  • 4. Massachusetts State and Local Taxes

    The income for a family in the top 1% is $2,600,000. How much, in dollars, does this family pay for each type of tax?

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      _____    _    _     _____      ___      ______  
     |__  //  | || | ||  / ____||   / _ \\   /_   _// 
       / //   | || | || / //---`'  | / \ ||    | ||   
      / //__  | \\_/ || \ \\___    | \_/ ||   _| ||   
     /_____||  \____//   \_____||   \___//   /__//    
     `-----`    `---`     `----`    `---`    `--`     
                                                      
    
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  • 5. Massachusetts State and Local Taxes

    Determine whether the three types of taxes are regressive, flat, or progressive in Massachusetts.

    • Worked-Out Solution
      • Sales & excise taxes are regressive because people in higher income brackets pay a lower rate.
      • Property taxes are also regressive because people in higher income brackets pay a lower rate.
      • Income taxes are progressive because people in higher income brackets pay a higher rate. Although Massachusetts has a flat tax rate of 5.3% (see Exercise 1), the deductions allowed by the state end up making the income tax progressive.
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      ______   _    _     _  _      ___      ____    
     /_   _// | || | ||  | \| ||   / _ \\   |  _ \\  
       | ||   | || | ||  |  ' ||  / //\ \\  | |_| || 
      _| ||   | \\_/ ||  | .  || |  ___  || | .  //  
     /__//     \____//   |_|\_|| |_||  |_|| |_|\_\\  
     `--`       `---`    `-` -`  `-`   `-`  `-` --`  
                                                     
    
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  • 6. Massachusetts Taxes

    Are taxes, as a whole, regressive, flat, or progressive in Massachusetts? Explain your reasoning.

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                 ___      ______    _____     _____   
        ___     / _ \\   /_   _//  |  ___||  /  ___|| 
       /   ||  / //\ \\    | ||    | ||__   | // __   
      | [] || |  ___  ||  _| ||    | ||__   | \\_\ || 
       \__ || |_||  |_|| /__//     |_____||  \____//  
        -|_|| `-`   `-`  `--`      `-----`    `---`   
         `-`                                          
    
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  • 7. Alcohol Sales Tax

    Massachusetts had a 6.25% sales tax on alcohol from August 2009 to December 2010. Part of the revenue from the tax was used to fund substance abuse programs. This tax was abolished in December, 2010. Do you agree with such a tax? Why or why not.

    • Worked-Out Solution

      This was a controversial tax. Although it was successful in raising money for the state, it was unpopular and was easily defeated when it came up for abolishment on a state-wide ballot.

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     _    _     _____     ______     ___     _    _   
    | \  / ||  |  ___||  /_____//   / _ \\  | \  / || 
    |  \/  ||  | ||__    `____ `   | / \ || |  \/  || 
    | .  . ||  | ||__    /___//    | \_/ || | .  . || 
    |_|\/|_||  |_____||  `__ `      \___//  |_|\/|_|| 
    `-`  `-`   `-----`   /_//       `---`   `-`  `-`  
                         `-`                          
    
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  • 8. Effects of a Tax

    Suppose the revenue from a sales tax on cigarettes is used to offset the costs of a new health insurance law. Discuss ways in which the tax might help the people who are paying the tax.

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      _  _      ___      _  __     ___     ______   
     | \| ||   / _ \\   | |/ //   / _ \\  |      \\ 
     |  ' ||  | / \ ||  | ' //   / //\ \\ |  --  // 
     | .  ||  | \_/ ||  | . \\  |  ___  |||  --  \\ 
     |_|\_||   \___//   |_|\_\\ |_||  |_|||______// 
     `-` -`    `---`    `-` --` `-`   `-` `------`  
                                                    
    
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