The effect of the tax reform of 1986 on the amount of borrowing through consumer debt and home equity debt.
Explanation of Solution
The tax reform act of 1986 was implemented in order to reduce the consumer debt and to increase home equity debt. As a result, people started to pay their mortgage less quickly and financed the general spending through home equity.
Concept introduction:
Tax: It is the unilateral payment made by the public towards the government. There are many different types of taxes in the economy; they include income tax, property tax, professional tax, and so forth.
Tax reform of 1986: This reform eliminated the deductibility of interest payments on consumer debt but maintained the deductibility of interest payments on mortgages and home equity loans.
Want to see more full solutions like this?
Chapter 12 Solutions
Bundle: Principles of Microeconomics, Loose-leaf Version, 8th + MindTap Economics, 1 term (6 months) Printed Access Card
- What are the main tax credit programs designed to boost the incomes of people who are unemployed or low earners? How effective are these tax credit programs, and for whom? Give two references and citations.arrow_forwardAccording to the textbook, which of the following statements about taxes in the U.S. is (are) correct? (x) Tax evasion is illegal, but tax avoidance is legal. (y) Most economists believe that a corporate income tax affects the stockholders of a corporation but not its employees or customers. (z) In practice, the U.S. income tax system is filled with special provisions that alter a family's tax based on its specific circumstances. A. (x), (y) and (z) B. (x) and (y) only C. (x) and (z) only D. (y) and (z) only E. (z) onlyarrow_forwardDo you think taxpayers would be willing to pay higher property taxes if the revenue is earmarked for a specific purpose?arrow_forward
- List the main categories of federal revenue and spending and describe the difference between marginal and average tax rates.arrow_forwardSome economists claim World War II ended the Great Depression of the 1930s. The war effort was financed by borrowing massive sums of money from the public. Explain how a war could end a recession. Look at recent and back issues of the Economic Report of the President or the Statistical Abstract of the United States. How large was the federal government’s debt as a percentage of GDP in 1946? How large is it today?arrow_forwardIn addition to issuing bonds, explain any two major ways the government can raise revenue to finance her spendingarrow_forward
- Using your own example and diagrams and referring to academic literature. Explain the logic underpinning the proposition that debt policy is irrelevant in a world where markets are perfectly competitive and efficient. Expand your answer by considering a situation where corporate taxes have been introduced and interest payments on debt are tax deductible. What implications does this new situation (where interest payments on debt are tax deductible) have for debt policy?arrow_forwardCan the method of loan repayment also have a significant impact on taxes? How?arrow_forwardWhich of the following is a source of Federal Revenue? A. Personal Income Tax B. Payroll Tax C. Corporate Income Tax D. Excise Tax E. All of the Abovearrow_forward
- Principles of Microeconomics (MindTap Course List)EconomicsISBN:9781305971493Author:N. Gregory MankiwPublisher:Cengage LearningPrinciples of Economics, 7th Edition (MindTap Cou...EconomicsISBN:9781285165875Author:N. Gregory MankiwPublisher:Cengage LearningPrinciples of Economics (MindTap Course List)EconomicsISBN:9781305585126Author:N. Gregory MankiwPublisher:Cengage Learning
- Macroeconomics: Private and Public Choice (MindTa...EconomicsISBN:9781305506756Author:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. MacphersonPublisher:Cengage LearningMicroeconomics: Private and Public Choice (MindTa...EconomicsISBN:9781305506893Author:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. MacphersonPublisher:Cengage LearningEconomics: Private and Public Choice (MindTap Cou...EconomicsISBN:9781305506725Author:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. MacphersonPublisher:Cengage Learning