What Would Be the Effect of Indexing the Tax System

question 109

Multiple Choice

What would be the effect of indexing the tax system to take into account the effects of inflation on taxing capital gains?

• A) Only real interest earnings would be taxed.
• B) The tax burden on capital gains would increase.
• C) Average tax rates would increase.
• D) Investors would be worse off.

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Definitions:

Margin Of Safety

The difference between actual or expected sales and the break-even point, indicating the level of risk in failing to cover fixed costs.

Breakeven

The point at which total costs and total revenue are equal, resulting in no net loss or gain.

Sales

The exchange of a commodity or service for money; the action of selling something.

Variable Costing

A costing method that includes only variable manufacturing costs (direct materials, direct labor, and variable manufacturing overhead) in product costs and treats fixed manufacturing overhead as a period expense.