Chapter 22: Problem 8

Which of the following statements is true? a. \(A\) sales tax on food is a regressive tax. b. The largest source of federal government tax revenue is individual income taxes. c. The largest source of state and local government tax revenue is sales taxes. d. All of the above are true.

Short Answer

Expert verified

Statements A and B are true: a sales tax on food is a regressive tax, and the largest source of federal government tax revenue is individual income taxes. Statement C is false, as the largest source of state and local government tax revenue is not sales taxes.

Step by step solution

Define Regressive Tax

A regressive tax is a tax that takes a larger percentage of income from low-income earners than from high-income earners. It is usually applied in a uniform manner regardless of income level, resulting in a higher burden on those with lower incomes.

Statement A

Determine if a sales tax on food is regarded as a regressive tax. Since a sales tax on food applies uniformly to everyone, regardless of their income, it takes a larger percentage of income from low-income earners compared to high-income earners. Therefore, statement A is true.

Statement B

Examine whether the largest source of federal government tax revenue is individual income taxes. According to official government data, the largest source of federal government tax revenue in the United States is indeed individual income taxes. Thus, statement B is true.

Statement C

Investigate if the largest source of state and local government tax revenue is sales taxes. State and local governments rely on different sources of tax revenue. Some of the major sources of revenue for state and local governments include sales taxes, property taxes, and individual income taxes. However, in general, property taxes are the largest source of revenue for local governments, and sales taxes are not the largest source for state governments. Hence, statement C is false.

Conclusion

Based on the analysis in this solution, the correct answer is that statements A and B are true, but statement C is false. So, the final answer is: a. \(A\) sales tax on food is a regressive tax. b. The largest source of federal government tax revenue is individual income taxes.