Question

The presence of a sales tax means that people pay a tax on most everyday things they buy, such as clothes and groceries. In the United States, 45 states collect state sales tax, and 38 states collect local sales tax. In 2018, the highest combined state and local sales tax was 10.02%, in Louisiana. The sales tax amount varies by location, but everyone purchasing within an area pays the same percentage sales tax.

a. Sales tax:_________.
i. is relatively more expensive to the poor than to the rich.
ii. is a relatively small expense for both the rich and the poor.
iii. is relatively more expensive to the rich than to the poor.
iv. impacts poor and rich families in the same way because everyone pays the same percentage.
b. A sales tax is:_______.
i. regressive
ii. progressive

Answer 1

i. is relatively more expensive to the poor than to the rich.

regressive

Step-by-step explanation:

A sales tax is a tax on the consumption of goods and services levied by the government or an agency of the government.

There are three types of tax systems

1. Regressive tax system is a tax system where those that earn lower income pay more tax and those that earn higher income pay less tax.

2. A proportionate tax taxes everyone the same regardless of the amount earned.

3. A progressive tax is a tax structure where those who earn higher income are taxed more and those that earn less pay less amount of tax.

A sales tax is regressive.

This can be illustrated with an example.

Person A earns $100,000 while person B earns $1000. They both purchased a good and the sales tax paid was $50.

The proportion of sales tax to income for person A = 50 / 100,000 = 0.05%

The proportion of sales tax to income for person B = 50 / 1000 = 5%

It can be seen that the sales tax is relatively more expensive to the poor than to the rich. this is an example of a regressive tax