Question

In a given year, Jennifer earns $50,000 and spends $40,000. During the same period, Stcve earns $30,000 and spends $27,000. If Jennifer and Steve both must pay a 10 percent sales tax on goods purchased, the sales tax is
(A) a higher perccntage of income for Jennifer than for Steve
(B) a higher percentage of spending for Steve

Answer 1

Answer:

The sales tax is regressive with respect to income

Explanation:

sales tax by Jennifer = 0.1*30000

                                   = 3000

tax/income = 3000/50000

                   = 6%

sales tax by steve = 0.1*27000

                                   = 2700

tax/income = 2700/30000

                   = 9%

The tax increases with decrease in income, it indeed is regressive on the whole.

Therefore, The sales tax is regressive with respect to income