Economics (McConnell) AP Edition, 19th Edition

Chapter 16: Public Finance: Expenditures and Taxes

Web-based Questions

1
Individual income taxes Go to http://www.irs.gov/taxstats/index.html and select by size of Adjustable Gross Income under Statistical Tables. Using the 2008 data under Individual Income Tax Returns Filed and Sources of Income, answer the following questions. What is the income range with the highest number of returns filed? What is the average income for this range? What is their average taxable income? What is the average income tax paid for this group? What is their average tax rate? Answer the same questions for those with no income and those in the highest income bracket.
2
Sources of government revenue Visit http://www.census.gov/, Publications and Statistical Abstracts. Select Table 463 under Federal Government Finances and Employment. Answer the following questions for 2006. What is the largest source of federal revenue? What percentage of federal revenue comes from excise taxes? Have these numbers changed over time? Now select Table 424 under State and Local Government Finances and Employment. What is the largest source of state revenue in 2006? What percentage of total state revenues comes from sales taxes?
3
Calculating taxes and determining average rates The Internal Revenue Service provides current tax-rate tables online at www.irs.gov. Enter Tax Tables in the search line and find 1040 Instructions (Tax Tables) for the latest tax year. Find the tax payment you would owe if you were a single taxpayer with a taxable income of (1) $23,360, (2) $46,200, and (3) $85,010 in the taxable year. Compare the average tax rates (taxable income/tax payment) for the three levels of income. Next, suppose that you live in a state with a 7 percent sales tax and that you spent 90 percent of your taxable income in the year. How much total sales tax would you pay at each income level? Add the total sales tax to the income tax for each income level and compute new average tax rates based on the combined income tax and sales tax as a percentage of taxable income. Compare the new percentages with the previous ones. What can you conclude from the comparison? (We are assuming that you take the standard deduction on your Federal income tax form and thus do not claim a sales tax deduction.)
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