Question

3. The two most important state taxes are income and general sales taxes, although states also make substantial use of excise taxes, direct business taxes (usually a corporate income tax), and others. List and discuss briefly four factors that might influence a state in choosing between an income and general sales tax. What is the relative reliance in your state on these two taxes? If the relative reliance in your state is different than average, speculate about why that might be so.

Answer 1

Income tax is the tax which individuals have to pay based on their yearly income. General sales tax is on the goods and services which individuals buy.

The four main factors which might influence a state in choosing between the two are as follows:

1. The income bracket in a certain state influences how the state takes in more money from an individual, if individuals in the state do not own much than states take in more money from sales tax. 2. The amount of goods sold in the state also plays a significant role in making states reduce income tax and rely more on sales tax. 3. If the state needs urgent investment in the region and want people to invest, the economic environment also plays a major role, leading to introduction of reduced tax rates and more reliance on sales tax. 4. The poverty level also influences the state in reducing the income tax, so that people will invest and the government takes in more money from sales tax, which is a form of indirect taxation.

In my state the relative reliance is on sales tax as there is more income inequality, which reduces governments chances of taking in more money from income tax, this ultimately leads to increase in revenue from sales tax and taking in more measures.