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.
Chapter12: The Public Sector
Section: Chapter Questions
Problem 12SQ
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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.
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