This discussion question has two parts, a and b. Be sure to answer both parts: a.) Explain reasons sales tax is basically equitable or not equitable by discussing the hypothetical example below. b.) Explain what makes sales tax an example of a regressive, progressive, or flat tax by explaining how it differs from the other two types of taxes. Use this hypothetical example of average tax rates (a better measure of tax equity than marginal tax rates) paid by two consumers/tax payers in San Francisco assuming the only tax is sales tax of 10% which is levied on all purchases: Jenny who lives in San Francisco, earns $30,000 income per year, pays a 10% sales tax rate on everything she purchases (rent, food, entertainment, transportation, etc.), spends all $30,000 income (not hard to do in S.F. on her income) so she effectively pays $3,000 taxes on $30,000 income. Calculate her average tax rate (average tax-total tax/total income). Then, compare and contrast her average tax rate (equity-wise) with a consumer/tax payer named Julio who also lives in San Francisco, earns $100,000 income per year, pays a 10% sales tax rate on everything he purchases (rent, food, entertainment, transportation, etc.), and spends identically to Jenny i.e. $30,000 of his income. How much is his average tax on his $100,000 income. Calculate his average tax rate.
This discussion question has two parts, a and b. Be sure to answer both parts: a.) Explain reasons sales tax is basically equitable or not equitable by discussing the hypothetical example below. b.) Explain what makes sales tax an example of a regressive, progressive, or flat tax by explaining how it differs from the other two types of taxes. Use this hypothetical example of average tax rates (a better measure of tax equity than marginal tax rates) paid by two consumers/tax payers in San Francisco assuming the only tax is sales tax of 10% which is levied on all purchases: Jenny who lives in San Francisco, earns $30,000 income per year, pays a 10% sales tax rate on everything she purchases (rent, food, entertainment, transportation, etc.), spends all $30,000 income (not hard to do in S.F. on her income) so she effectively pays $3,000 taxes on $30,000 income. Calculate her average tax rate (average tax-total tax/total income). Then, compare and contrast her average tax rate (equity-wise) with a consumer/tax payer named Julio who also lives in San Francisco, earns $100,000 income per year, pays a 10% sales tax rate on everything he purchases (rent, food, entertainment, transportation, etc.), and spends identically to Jenny i.e. $30,000 of his income. How much is his average tax on his $100,000 income. Calculate his average tax rate.
Economics Today and Tomorrow, Student Edition
1st Edition
ISBN:9780078747663
Author:McGraw-Hill
Publisher:McGraw-Hill
Chapter16: Government Spends, Collects, And Owes
Section: Chapter Questions
Problem 18AA
Related questions
Question
Transcribed Image Text:This discussion question has two parts, a and b. Be sure to answer both parts: a.) Explain reasons sales tax is basically equitable or
not equitable by discussing the hypothetical example below. b.) Explain what makes sales tax an example of a regressive,
progressive, or flat tax by explaining how it differs from the other two types of taxes.
Transcribed Image Text:Use this hypothetical example of average tax rates (a better measure of tax equity than marginal tax rates) paid by two consumers/tax payers in San
Francisco assuming the only tax is sales tax of 10% which is levied on all purchases: Jenny who lives in San Francisco, earns $30,000 income per year,
pays a 10% sales tax rate on everything she purchases (rent, food, entertainment, transportation, etc.), spends all $30,000 income (not hard to do in
S.F. on her income) so she effectively pays $3,000 taxes on $30,000 income. Calculate her average tax rate (average tax-total tax/total income).
Then, compare and contrast her average tax rate (equity-wise) with a consumer/tax payer named Julio who also lives in San Francisco, earns
$100,000 income per year, pays a 10% sales tax rate on everything he purchases (rent, food, entertainment, transportation, etc.), and spends
identically to Jenny i.e. $30,000 of his income. How much is his average tax on his $100,000 income. Calculate his average tax rate.
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
Step by step
Solved in 2 steps
Recommended textbooks for you
Economics Today and Tomorrow, Student Edition
Economics
ISBN:
9780078747663
Author:
McGraw-Hill
Publisher:
Glencoe/McGraw-Hill School Pub Co
Exploring Economics
Economics
ISBN:
9781544336329
Author:
Robert L. Sexton
Publisher:
SAGE Publications, Inc
Economics Today and Tomorrow, Student Edition
Economics
ISBN:
9780078747663
Author:
McGraw-Hill
Publisher:
Glencoe/McGraw-Hill School Pub Co
Exploring Economics
Economics
ISBN:
9781544336329
Author:
Robert L. Sexton
Publisher:
SAGE Publications, Inc
Principles of Microeconomics
Economics
ISBN:
9781305156050
Author:
N. Gregory Mankiw
Publisher:
Cengage Learning