Which of the following is a fundamental distinguishing feature of individual inc

Question

Which of the following is a fundamental distinguishing feature of individual income taxes compared with payroll taxes? A. Individual income taxes are applied to a more narrowly defined set of income 1. ources B. Individual income taxes are applied in many cases to the entire income of a family C. Individual income taxes are the primary means of financing social insurance programs D. Individual income taxes are applied only on income earned up to a maximum value 2. A tax system in which average tax rates fall as income rises is a tax system; the way in which the average tax rate changes as income rises is a measure of A. regressive; vertical B. regressive; horizontal C. progressive; vertical equity progressive; horizontal By which item can taxpayers directly reduce the taxes they owe to the government through spending, for example, on child care? A. itemized deduction B. standard deduction C. tax credit D. exemption 3· The Haig-Simons comprehensive income definition defines taxable resources as: A. income earned from participating in the labor market. B. the increase in an individual's wealth. C. an individual's actual consumption for the year 4.

Explanation / Answer

1. Answer is A

Reason - Payroll is one of the sources of income. However, the individual income tax consists of other sources such as rents, income from other business etc

2. Answer is A

If the tax rate decreases as the income increases means that the rich is being taxed lesser than the poor. This will increase the income gap in the society which will in turn increase the measure of vertical equity because it is beneficial for one section of the society

3. Answer is D

Government provides exemption to the taxes in order to encourage people to invest or spend on the particular sectors. The amount you spent on particular sectors can be exempted from your total income when the tax rates are calculated provided the upper limit set by the government

4. Answer B

According to Haig and Simons, the total income includes the consumptions and change in net worth of the individual for any particular year. The tax base should be on the individual's wealth as they considered the consumption is also a part of individual income.

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