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15 Dec 2020, 12:24
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VaibhavMahindru
I have the same thought process.
If the state tax rate varies considerably from state to state, and if the state tax rate is lower than the federal tax rate, then perhaps more people are willing to pay the lower state rate than the higher federal tax rate, resulting in a lower federal tax collection rate.
Is this line of thinking incorrect?
22 Dec 2020, 08:10
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basshead
Let’s take a closer look at (D):
Quote:
The problem is that (D) does not indicate that the state tax rate is lower than the federal tax rate. Rather, it says that the state tax rate varies from state to state whereas the federal tax rate is the same across all states. As we said in our previous post, this merely reiterates what we already knew: state and federal taxes are based on different laws.
(D) simply gives us no reason to believe that state taxes are lower than federal taxes. From the information given in (D), it is equally likely that state taxes are higher than federal taxes, so we cannot assume that state taxes are lower. Some states may have lower tax rates, and some states may have higher tax rates. If we assume that people are more likely to pay off their taxes in states with lower tax rates, then we must also assume that they are less likely to pay off their taxes in states with higher tax rates. This would then have no net effect on the percentage of delinquent tax collected.
So (D) doesn't explain the economists’ projections, and we can eliminate it.
I hope that helps!
