12th grade Fiscal policy: taxes, spending, deficits and the national debt worksheet

Fiscal policy: taxes, spending, deficits and the national debt

Grade 12 Social Studies Worksheet - Building Confidence

Circle the best answer.

1. Read this first

   Dorn's income tax (made up)

   Income band	Tax rate (percent)
   First $20,000	10
   $20,000 to $60,000	20
   Above $60,000	30

   Note: The taxes and the three earners are made up. Card A: A marginal tax rate is the rate on the next dollar earned; an average tax rate is total tax divided by income. Card B: Aldo earns $50,000 and spends $40,000 a year. Bree earns $80,000 and spends $50,000. Cai earns $15,000 and spends $15,000. Card C: A progressive tax takes a larger share of income as income rises; a regressive tax takes a smaller share; a proportional tax takes the same share. A direct tax is paid to the government by the person it is meant to burden; an indirect tax is collected by a seller and passed on in prices. Card D: Dorn also charges a sales tax of 6 percent on everything bought. Card E (in our words): Expansionary fiscal policy raises government spending or cuts taxes to lift output; contractionary fiscal policy does the reverse. A deficit is spending above revenue in one year; the debt is the total borrowed and not yet repaid.

2. 1.

   Aldo gets a $1,000 raise. Pia asks how much of it Aldo keeps, using the chart and card B. Which answer and reason fit?

   • $800: the raise is taxed at Aldo's marginal rate, 20 percent, not at his 16 percent average
   • $900: the raise is taxed in the first band at 10 percent, since an earner's tax begins there
   • $840: the raise is taxed at Aldo's average rate, 16 percent, so he keeps the other 84 percent
   • $700: the raise is taxed at the top rate of 30 percent because Aldo's income is near that band
3. 2.

   Bree earns $80,000. Bo works out Bree's tax from the chart. Which statement is correct?

   • Bree pays $16,000, so her average rate and her marginal rate are both 20 percent
   • Bree pays $24,000, 30 percent of her pay, because her top rate applies to her whole income
   • Bree pays $8,000, the same as Aldo does, because both of them reach the 20 percent band
   • Bree pays $16,000, an average rate of 20 percent, while her next dollar is taxed at 30 percent
4. 3.

   Esme classifies Dorn's income tax using card C and the three earners' average rates. Which classification is right?

   • Regressive: Bree pays the most dollars in tax, so the tax weighs most heavily on her
   • Progressive: the average rate rises with income, 10 percent for Cai, 16 for Aldo, 20 for Bree
   • Proportional: the three earners pay in the same set of bands, so they are treated the same
   • Progressive for Bree alone, since just Bree's income reaches the top band of 30 percent
5. 4.

   Aldo pays both Dorn's income tax and the 6 percent sales tax. Kira totals the two. Which statement about Aldo's burden is right?

   • Together the taxes take about 26 percent, the 20 percent marginal rate plus the 6 percent sales tax
   • Together the taxes take $8,000, because the sales tax is already inside the income tax
   • Together the taxes take about 22 percent, Aldo's 16 percent average rate plus the 6 percent sales tax
   • Together the taxes take $10,400, about 21 percent of Aldo's $50,000 income
6. 5.

   Luz classifies the two taxes on Aldo using card C. Which pairing is right?

   • The sales tax is direct, because Aldo ends up bearing it in his budget, and the income tax is indirect
   • Both are indirect, because both taxes are measured as a share of money earned or spent
   • Both are direct, because Aldo's own money pays for both of the taxes in the end, one way or another
   • Income tax is direct, paid by Aldo; the sales tax is indirect, collected by sellers
7. 6.

   A city (made up) collected $90 million, spent $100 million and already owed $400 million. Noah applies card E. Which statement is right?

   • The deficit is $10 million for the year, and the debt rises to $410 million
   • The city has a $10 million surplus, since it spends $10 million more than it owed
   • The deficit is $190 million, and the debt rises to $590 million
   • The deficit is $400 million, the amount owed, and the debt is $10 million
8. 7.

   A tax cut lets people spend more but lowers government revenue. Ren asks what that does if government spending stays the same. Which statement fits?

   • It shrinks the deficit, since people spend more and the government gets that money back
   • It cannot lift spending, because taxpayers save the money they get back
   • It can lift spending now but widens the deficit, since revenue falls while outlays stay put
   • It lowers the debt right away, because a deficit and the debt are the same thing
9. 8.

   A student says the 30 percent rate means Bree loses 30 percent of her pay. Tala tests the claim. What is the best reply?

   • No: Bree pays 10 percent of $80,000, since the first band sets the rate for each earner
   • Yes: 30 percent is Bree's average rate on the $80,000, since the marginal rate is the one that counts
   • No: 30 percent applies to income above $60,000; Bree's average rate is 20 percent
   • Yes: the top rate applies to the whole $80,000 once a person reaches that band
10. 9.

    A columnist says everyone pays the same 6 percent sales tax, so it treats everyone alike. Zee checks card B. Which reply is best?

    • The claim is false: the rate on spending differs, since Bree buys more goods than Cai
    • The claim is false: Bree bears the larger share of income since she pays the most dollars
    • The claim is right: an equal rate means an equal burden for each earner, so the tax treats the earners alike
    • Equal rate on spending, unequal share of income: Cai pays 6 percent and Bree 3.75
11. 10.

    Ari wants two facts that together show the income tax is progressive and the sales tax regressive for these earners. Which pair works?

    • Income tax takes 10, 16 and 20 percent; sales tax takes 6 percent from each person
    • Income tax takes $1,500, $8,000 and $16,000; sales tax takes $900, $2,400 and $3,000
    • Income tax takes 6, 4.8 and 3.75 percent; sales tax takes 10, 16 and 20 percent
    • Income tax takes 10, 16 and 20 percent of income; sales tax takes 6, 4.8 and 3.75