Please respond back to the three classmate Q/A below adding value or an experience that pertains;

Question 7

Ms. Vincent resides in a jurisdiction with a 35 percent income tax. Ms. Vincent is considering two options: invest $40,000 in bonds paying 8 percent annual interest or spend the $40,000 on a new luxury automobile. Ms. Vincent is having a hard time deciding between these two alternatives. Why might the decision be easier if the jurisdiction increases its income tax rate to 50 percent.

The decision between investing in bonds or buying a luxury automobile may become easier for Ms. Vincent if the jurisdiction increases its income tax rate to 50 percent because of tax implications, potential returns, and opportunity cost.

In regards to the tax implications, with a higher income tax rate, the amount of taxable income from the bond investment will be subject to a higher tax rate. This means that Ms. Vincent will have to pay more in taxes on the interest earned from the bonds.

In regards to the potential returns, the bonds pay an 8 percent annual interest rate. However, after accounting for the higher income tax rate, the net return on the investment will be lower. On the other hand, the luxury automobile does not generate any income or returns.

In regards to the opportunity cost, by choosing to spend the $40,000 on a luxury automobile, Ms. Vincent is forgoing the potential returns from the bond investment. With a higher income tax rate, the opportunity cost of not investing in bonds becomes more significant.

Due to these three factors, the decision to invest in bonds may become more favorable compared to buying a luxury vehicle if the jurisdiction increases its income tax rate to 50 percent.

Chapter 2 Question 3 Issue Recognition

Ms. Kinsolver is completely blind, while Mr. Lu is paralyzed from the waist down. Both individuals have the same income. The Internal Revenue Code provides a preferential deduction for individuals who a blind, and as a result, Ms. Kinsolver's income tax liability is less than Mr. Lu's income tax liability.

Is this a horizontally equitable situation? Do both individuals have the same ability to pay? Is the preferential deduction causing this to distort the horizontal equity of the income tax? Wouldn't both of the individuals benefit from a preferential tax?

Question 4

National governments have the authority to print their own currency. Why might governments be reluctant to finance an operating deficit (excess of spending over revenues) simply by printing more money?

Printing more money does nothing to increase tax revenues. It only dilutes the value of the currency. The only way to decrease a national debt is to either increase tax revenues or cut government spending.

We have already seen this play out. Hyperinflation occurred after WWI because the Weimer government continued to print money. It diluted the value so much that a single cup of coffee could be between 5,000 to 7,000 marks. By 1923, one U.S dollar was equivalent to 1 trillion marks.

Backhouse, F. (2022, May 6).Hyperinflation in the Weimar Republic. Www.britannica.com; Britannica. https://www.britannica.com/event/hyperinflation-in-the-Weimar-Republic