Chapter 22: Problem 9

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

The correct answer is a combination of the individual true statements: a sales tax on food is a regressive tax (a) and the largest source of federal government tax revenue is individual income taxes (b). Statement c is false, as property taxes are often a more significant source of revenue for state and local governments than sales taxes.

Step by step solution

Understanding Regressive Tax

A regressive tax is a tax that takes a larger percentage of income from low-income earners than from high-income earners. In other words, as a person's income decreases, the burden of the tax becomes a higher proportion of their overall income. Now, let's consider the statements.

Evaluating Statement a

Statement a states, "A sales tax on food is a regressive tax." Sales tax on food is considered a regressive tax because everyone has to pay the same tax rate, regardless of their income. Since lower-income families spend a higher proportion of their income on food, sales tax on food has a larger impact on them compared to those with higher incomes. Therefore, statement a is true.

Evaluating Statement b

Statement b says, "The largest source of federal government tax revenue is individual income taxes." According to financial reports and data from the U.S. government, individual income taxes indeed make up the largest source of federal tax revenue. So, statement b is also true.

Evaluating Statement c

Statement c states, "The largest source of state and local government tax revenue is sales taxes." While sales taxes do contribute to state and local government tax revenue significantly, property taxes are often a more significant source of revenue for state and local governments. Therefore, statement c is false.

Conclusion

Based on the analysis, we conclude that statements a and b are true, while statement c is false. So, the correct answer is not "All of the above are true," but rather, a combination of the true individual statements a and b.