Multiple Choice
Which of the following statements best describes the role of federal, state, and local entities in economics?
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0. Basic Principles of Economics
Introduction to Economics
Multiple Choice
The reliance of Texas on sales tax for revenue means that Texas's tax policies are _____.
A
neutral
B
proportional
C
progressive
D
regressive
Verified step by step guidance1
Step 1: Understand the definitions of tax structures: a proportional tax takes the same percentage of income from all taxpayers; a progressive tax takes a larger percentage from higher-income earners; a regressive tax takes a larger percentage from lower-income earners.
Step 2: Recognize that sales taxes are applied uniformly on purchases regardless of the buyer's income, meaning everyone pays the same rate on goods and services.
Step 3: Consider that lower-income individuals tend to spend a higher proportion of their income on consumption compared to higher-income individuals, who can save more.
Step 4: Since sales tax is a fixed percentage on purchases, lower-income individuals end up paying a higher fraction of their income in sales taxes than higher-income individuals, making the tax burden heavier on the poor.
Step 5: Conclude that because the tax burden decreases as income increases, Texas's reliance on sales tax makes its tax policies regressive.
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