McGraw Hill’s Taxation of Individuals 2022 Edition 13th Edition by Brian Spilker Solution manual
Total Tax
Rodney 10,000 600
Keisha 10,000 600
The tax rate structure is horizontally equitable because taxpayers in similar situations (Rodney and Keisha) pay the same tax. We cannot evaluate whether the tax is vertically equitable because we are unable to determine if taxpayers with a greater ability to pay (higher income) pay more tax.
Taxes will affect several aspects of Lorenzo’s decision. Lorenzo should consider differences in Texas and Oklahoma for (1) business taxes (e.g., corporate taxes), (2) individual income taxes, (3) excise taxes on gasoline, (4) real estate taxes (business and personal), (5) estate taxes (e.g., for wealth transfers from his parents), and (6) sales taxes.
The IRS’ budget for exam and collections as a percentage of revenue collected is about .33 percent. Currently, the IRS collects over $3.56 trillion annually with a budget of $11.8 billion. Thus, for every $100 collected, about .33 cents is spent on collection efforts. This data is useful in evaluating “economy.” See: https://www.irs.gov/statistics/soi-tax-stats-collections-costs-personnel-and-us-population-irs-data-book-table-29
California currently has the highest individual income tax rate (13.3%). To compare tax burdens across states, one should also consider real estate and other property taxes, excise taxes (gasoline taxes), and sales taxes.
Rodney 10,000 600
Keisha 10,000 600
The tax rate structure is horizontally equitable because taxpayers in similar situations (Rodney and Keisha) pay the same tax. We cannot evaluate whether the tax is vertically equitable because we are unable to determine if taxpayers with a greater ability to pay (higher income) pay more tax.
- [LO 1, LO 4 PLANNING] Lorenzo is considering starting a trucking company either in Texas or Oklahoma. He will relocate his family, which includes his wife, children, and parents, to reside in the same state as his business. What types of taxes may influence his decision of where to locate his business?
Taxes will affect several aspects of Lorenzo’s decision. Lorenzo should consider differences in Texas and Oklahoma for (1) business taxes (e.g., corporate taxes), (2) individual income taxes, (3) excise taxes on gasoline, (4) real estate taxes (business and personal), (5) estate taxes (e.g., for wealth transfers from his parents), and (6) sales taxes.
- [LO 3, LO 5 PLANNING] Congress would like to increase tax revenues by 10 percent. Assume that the average taxpayer in the United States earns $65,000 and pays an average tax rate of 15 percent. If the income effect is in effect for all taxpayers, what average tax rate will result in a 10 percent increase in tax revenues? This is an example of what type of forecasting?
This analysis is an example of dynamic forecasting. Based on the information above, the average taxpayer pays $9,750 of tax (i.e., $65,000 × 15%), leaving $55,250 of income after tax. A 10 percent increase in revenues would mean that the average taxpayer pays $10,725 in tax ($9,750 × 1.10). With this new tax amount, we can solve for the tax rate that would generate this tax amount.
After-tax income = Pretax income × (1 – tax rate)
After-tax income = Pretax income – (Pretax income × tax rate)
After-tax income = Pretax income - Tax
Substituting information from the problem results in:
$55,250 = Pretax income - $10,725
Pretax income = $65,975
We can use the above formula to solve for the new tax rate.
After-tax income = Pretax income × (1 – tax rate)
$55,250 = $65,975 × (1 – tax rate)
Tax rate = $10,725/$65,975 = 16.26%
- [LO 5 RESEARCH] Locate the IRS Web site at www.irs.gov/ . For every $100 the IRS collected, how much was spent on the IRS collection efforts? What tax system criterion does this information help you to evaluate with respect to the current U.S. tax system?
The IRS’ budget for exam and collections as a percentage of revenue collected is about .33 percent. Currently, the IRS collects over $3.56 trillion annually with a budget of $11.8 billion. Thus, for every $100 collected, about .33 cents is spent on collection efforts. This data is useful in evaluating “economy.” See: https://www.irs.gov/statistics/soi-tax-stats-collections-costs-personnel-and-us-population-irs-data-book-table-29
- [LO 4 RESEARCH] Using the Internet, find a comparison of income tax rates across states. What state currently has the highest income tax rate? In considering individual tax burdens across states, what other taxes should you consider?
California currently has the highest individual income tax rate (13.3%). To compare tax burdens across states, one should also consider real estate and other property taxes, excise taxes (gasoline taxes), and sales taxes.