Scenario 20-2 Suppose That a Society Is Made Up of Five Families

question 85

Multiple Choice

Scenario 20-2
Suppose that a society is made up of five families whose incomes are as follows:
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$120,000; $90,000; $30,000; $30,000; and $18,000.
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The federal government is considering two potential income tax plans:
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Plan A is a negative income tax plan where the taxes owed equal 1/3 of income minus $20,000.
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Plan B is a two-tiered plan where families earning less than $35,000 pay no income tax and families earning more than $35,000 pay 10% of their income in taxes. The income tax revenue collected from those families earning over $35,000 is then redistributed equally to those families earning less than $35,000.
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-Refer to Scenario 20-2. Assuming that utility is directly proportional to the cash value of after-tax income, which government policy would an advocate of libertarianism prefer?

• A)Neither Plan A nor Plan B because any plan that forcibly redistributes income is against the philosophy
• B)Only Plan A
• C)Only Plan B
• D)Either Plan A or Plan B

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Definitions:

Specific Identification Method

An inventory valuation method where costs are directly assigned to individual units of inventory, enabling precise profit margin calculations.

Inventory Valuation

The method used to determine the cost associated with an inventory at the end of a financial period, which affects cost of goods sold and, consequently, net income.

Net Income

The net income of a company following the deduction of all taxes and expenses from the gross revenue.

FIFO Cost Flow

An inventory valuation method in which the costs of the earliest goods purchased are the first to be recognized in determining cost of goods sold.