Assignment
Part I -- Tax Evaluation Criteria
1. Assume that the Governor has proposed an increase in the cigarette tax from $2.00 to $2.50 per pack to generate revenues for a new daycare program for low-income workers. Using the "A BEAR" tax evaluation criteria discussed in lectures, evaluate the strengths and weaknesses of this tax proposal. You should not address whether you think the daycare program is a good idea - rather your analysis should focus on whether increasing the cigarette tax is a good way to finance this program.
Part II -- Property Tax
For these questions, be sure to show your work; specifically, show the formulas and calculations you used to derive the results.
2. The City of Hometown has a property tax base with a market value equal to $120 million. The city uses an assessment ratio of 80% and has a 96% collection rate. The city allows homestead exemptions. Citywide, those exemptions total $6.0 million.
A. What property tax rate would the city need to use to generate $3.9 million in property tax revenue? Express your answer as a tax rate per $100 of assessed value.
B. Mr. Jones owns taxable property in the city with a market value of $60,000. Assume that he is eligible for a homestead exemption equal to $5,000 of the assessed value. How much would Mr. Jones owe in taxes given the rate you calculated in Part A?
3. You have been provided with the information listed below for the City of XYZ.
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2015
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2016
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market value of taxable property
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$900 million
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increases by 2% from 2015 value
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assessment ratio
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60%
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60%
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collection rate
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95%
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97%
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tax rate
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1.15 per $100 AV
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???
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The City of XYZ is subject to a maximum increase in the property tax levy of 5 percent annually. Answer each of the questions below in order to determine what the maximum property tax rate could be in 2016. (Be sure to show your calculations.)
A. What was the property tax levy in 2015?
B. What is the maximum property tax levy that would be allowed in 2016?
C. What is the market value of taxable property in 2016?
D. What is the maximum property tax rate that the city could use in 2016? Express the rate in dollars per $100 assessed value.
Part III - Income Tax
4. The State of Illiana has a state income tax with the following components:
• the state income tax applies only to wages and salaries (e.g. does not include interest and dividends)
• the state allows a standard deduction of $1,000 per person
• the state allows a tax credit equal to $150 per person
• the marginal tax rates are as shown below
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taxable income
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marginal tax rate
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0 - $20,000
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4%
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20,001 - 50,000
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6%
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> 50,000
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8%
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A. Assume that Mr. Jones, a resident of the State of Illiana, has total income equal to $68,000. His income includes $65,000 from his salary and $3,000 in interest. How much would he owe in state income taxes?
B. What is Mr. Jone's marginal tax rate?
C. What is Mr. Jones' effective tax rate?
D. Define each of the following terms:
1. a progressive tax
1. a regressive tax
E. Explain how restricting taxable income to wages and salaries (as opposed to including interest and dividends) affects the progressivity or regressivity of the state's income tax.
F. Explain how a tax credit equal to $150 per person affects the progressivity or regressivity of the state income tax.
G. The State is considering allowing each person to take a $100 exemption. If this exemption is implemented, what will be the change (in dollars) in the amount of income tax that Mr. Jones owes?