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CEO
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1090;ÐЬOne state adds a 5 percent sales tax to [#permalink]
 19 Sep 2003, 17:21
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тАЬOne state adds a 5 percent sales tax to the price of most products bought within its jurisdiction. This tax, therefore, if viewed as tax on income, has the reverse effect of the federal income tax; the lower the income, the higher the annual percentage rate at which the income is taxed.тАЭ
The conclusion above would be properly drawn if which of the following were assumed as a premise?
1.The amount of money citizens spend on products subject to the state tax tends to be equal across income levels
2. The federal income tax favors citizens with high incomes, whereas the state sales tax favors citizens with low incomes
3. Citizens with low annual incomes can afford to pay a relatively higher percentage of their incomes in state sales tax, since their federal income tax is relatively low
4. The lower a stateтАЩs sales tax, the more it will tend to redistribute income from the more affluent citizens to the rest of the society
5. Citizens who fail to earn federally taxable income are also exempt from the state sales tax
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Senior Manager
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will go with A.
Only if it is assumed that poeple across all income levels will spend the same amont of money on these products, we can conclude that poeple with lower incomes will pay more tax, a situtation that has reverse effect of federal income taxes (where higher the income more the tax).
Sounds like a scary question but little focus helps to see through the argument. good question. hope i am right....
- Vicks
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CEO
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Vicky wrote: will go with A.
Only if it is assumed that poeple across all income levels will spend the same amont of money on these products, we can conclude that poeple with lower incomes will pay more tax, a situtation that has reverse effect of federal income taxes (where higher the income more the tax).
Sounds like a scary question but little focus helps to see through the argument. good question. hope i am right....
- Vicks
Correct answer and Correct logic.
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Senior Manager
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My A...
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Director
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Since sales tax is dependent on product purchase spendings, the effect of sales tax on the income is depenedent on product spendings.
The sales tax effect, the reverse effect of federal income tax, is that higher income --> higher percentage of income that is sales taxed
Logical
So answer is definately A
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Senior Manager
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A is the winner
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Senior Manager
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I got A too!
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