If Congress changes the tax law so as to increase marginal tax rates, what will happen to the price of municipal bonds?
What will be an ideal response?
An increase in the maximum marginal tax rate for individuals will increase the attractiveness of municipal securities. This was seen with the Tax Act of 1990, which raised the maximum marginal tax rate to 33%. Ceteris paribus, an increase in tax rates has a positive effect on the price of municipal securities, as demand will increase. An increase in price is needed to restore the desired returns.
On the other hand, a decrease in the maximum marginal tax rate for individuals will decrease the attractiveness of municipal securities. This was seen with the Tax Reform Act of 1986 where the maximum marginal tax rate for individuals was reduced from 50% to 28%. Ceteris paribus, a decrease in tax rates has a negative effect on the price of municipal bonds, as demand will decrease. The effect of a lower tax rate was once again seen in 1995 with Congressional proposals regarding the introduction of a flat tax when tax-exempt municipal bonds began trading at lower prices. The higher the marginal tax rate, the greater the value of the tax exemption features. As the marginal tax rate declines, the price of a tax-exempt municipal security also declines.
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Under U.S. GAAP, which of the following items would require a lessee to classify a lease of equipment as a capital lease?
a. There is no transfer of ownership to the lessee at the end of the lease term. b. The lease does not contain a bargain purchase option. c. The lease term is 90% of the estimated economic life of the lease property. d. The present value of the contractual minimum lease payments is 75% of the fair value of the leased property.
Internet versions of topical tax services include
A. Court cases involving tax issues. B. Revenue rulings, letter rulings, and revenue procedures. C. Code and Regulations. D. All of the above.
Explain what is meant by the statement: "simulation is not limited to using the standard probability distributions."
What will be an ideal response?
Which of the following is true of the federal minimum wage?
A. An employer may not reduce the minimum wage by an amount equal to the reasonable cost of food provided to employees. B. It is set by Congress and can be changed. C. Apprentices cannot be paid less than the minimum wage. D. Employees who earn tips, such as waiters and waitresses, are not entitled to the minimum wage.