1. Property A and property B are two single-family residential properties in a m
ID: 1167348 • Letter: 1
Question
1. Property A and property B are two single-family residential properties in a municipality that has just introduced market value assessment. Before market-value assessment, A and B were paying the same annual property tax but A had a lower assessed-to-true-market-value ratio than B. This means that after the introduction of market value assessment
a. they will continue to pay the same tax
b. B will pay a higher tax than A
c. you can't tell from this information how much their relative taxes will be
d. A will pay a higher tax than B
e. both properties taxes will have to go up
2. Local taxes based on the benefits principle would
a. be distributed among people in the same way that benefits from local spending are distributed
b. be distributed among people in the same way that the costs of local service are distributed
c. likely be property taxes
d. mean that the taxes on poor people would have to be less than the taxes on rich people
e. result in a redistribution of benefits towards lower income families
3. Local cost-based taxes are less efficient than benefit-based taxes if
a. households or businesses cannot vary their exposure to or use of local services
b. the costs of the various services are greater than the benefits
c. cost-based taxes are never less efficient than benefit-based taxes
d. the objective is to redistribute income towards the poor and away from the wealthy
e. the benefit tax is a poll tax
Explanation / Answer
Answers:
1. You can't tell from this information how much their relative taxes will be.
Explantion: We do not the exact market or assessed value of their properties. The information given is not enough.
2. Local taxes based on benefits principle would be distributed the same way benefits from local spending are distributed.
Explanation: It is the opposite of ability to pay principle by which people are taxed according to their income or ability to pay. Thus, in the case of benefits principle, taxes are charged according to the benefits received by the people from government spending.
3. Local cost-based taxes are less efficient than benefit-based taxes if the costs of the various services are greater than the benefits.
Explanation: This is because when the cost of various services are greater than the benefits the tax is said to be regressive and thus, the cost based taxes become less efficient than benefits based taxes.
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