ONLINECO 

Chapter 12. The Design of the Tax System. Problems and Application. Gregory Mankiw. Principles of Economics. 7th edition. 6-9.

 

6. When someone owns an asset (such as a share ofstock) that rises in value, he has an “accrued” capitalgain. If he sells the asset, he “realizes” the gains that have previously accrued. Under the U.S. income taxsystem, realized capital gains are taxed, but accruedgains are not. a. Explain how individuals’ behavior is affected by this rule. b. Some economists believe that cuts in capital gains tax rates, especially temporary ones, can raise tax revenue. How might this be so? c. Do you think it is a good rule to tax realized but not accrued capital gains? Why or why not?

 

7. Suppose that your state raises its sales tax from 5 percent to 6 percent. The state revenue commissioner forecasts a 20 percent increase in sales tax revenue. Is this plausible? Explain.

 

8. The Tax Reform Act of 1986 eliminated the deductibility of interest payments on consumer debt (mostly credit cards and auto loans) but maintained the deductibility of interest payments on mortgages and home equity loans. What do you think happened tothe relative amounts of borrowing through consumerdebt and home equity debt?

 

9. Categorize each of the following funding schemes as examples of the benefits principle or the ability-to-pay principle. a. Visitors to many national parks pay an entrance fee. B. Local property taxes support elementary and Secondary schools. c. An airport trust fund collects a tax on each plane ticket sold and uses the money to improve airports and the air traffic control system.