Question

In: Economics

You are on the town financial committee. Would you propose sales tax, social security tax of...

You are on the town financial committee. Would you propose sales tax,
social security tax of payroll or progressive tax? Explain.

a. Suppose you are asked to serve on your state commission to revise the tax
system of the state. If you had to choose among a social security type of
payroll tax, a progressive income tax, a property tax, or a sales tax, which
one would you choose? Why?

Solutions

Expert Solution

Sales tax should be proposed, since this gives the largest and quick effect in finance. If the committee requires earning a big income, the indirect tax like sales tax should be imposed at higher slab; this tax is applicable on goods to be sold and there are so many selling in a single hour of time within the town; therefore, the effect would be high. The tax rate could be decreased if the committee requires an increasing money flow in the town.

Social Security tax and progressive tax are not so frequent – these are usually required once in a month or year. Therefore, there may not be as quick effect as the sale tax has.

a.

Progressive income tax should be chosen.

This system indicates an increasing tax rates for an increasing incomes; and vice versa. The problem is to find the appropriate tax rates and what is to be considered as low earning or high earnings.

This system is much more complicated than the other tax systems. Since I am in change of revising the whole tax system, progressive system would take more time, assumptions, and calculations out of the others. Therefore, this system should be chosen first for proper allocation of time and effort.    


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