As a newly hired policy analyst in the Office of Management and Budget for TreeCity, you have been tasked with assessing a soda tax proposal from the Mayor's Office. The soda tax proposal is intended to both reduce consumption of soda and also generate revenue for climate change adaptation efforts the city plans to undertake (e.g., efforts to reduce flooding due to extreme weather events). The proposal is to place an additional sales tax on soda purchases. Currently, these purchases are subject to the existing 7% sales tax. Under the Mayor's Office proposal, an additional tax equal to 12% of the purchase price would be imposed on purchases of soda. Consequently, the total sales tax rate on soda would be 19%. 

 

 Question:

 In the city, the annual value of soda purchases has averaged $200 million over the past 3 years (you can assume that it has neither significantly increased nor decreased during that time). Based on this information, the Mayor's Office estimates that the new 12% soda tax could generate $24 million in new revenue. Do you think that this revenue estimate is too high, too low, or about right? Explain why?

Answer rating: 100% (QA)

Its not possible to determine if the revenue estimate of 24 million is too high too low or about rig... View the full answer