Two Families Who Live in Plains, GA Have Identical Incomes

question 139

Multiple Choice

Two families who live in Plains, GA have identical incomes. The Smiths deduct $5,000 from their taxable income for mortgage interest paid during the year. The Jones family lives in an apartment and is not eligible for a mortgage-interest deduction. This situation exemplifies

• A)an application of the benefits principle of taxation.
• B)a violation of horizontal equity.
• C)a violation of vertical equity.
• D)an application of egalitarian tax rules.

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Definitions:

Available-for-sale

A classification for financial assets implying that they can be sold in the future, but are not held primarily for trading purposes.

Investment Portfolio

A collection of investments held by an individual or institution which may include stocks, bonds, real estate, and other financial assets.

Net Income

The amount of earnings left over after all operational, financial, and tax expenses have been subtracted from total revenue; essentially, the company's profit.

Stockholders' Equity

Represents the ownership interest of shareholders in a corporation, calculated as the difference between total assets and total liabilities.