V439: Tax Policy Analysis

Spring 2016 Assignment #2Due:30 Points

Instructions:

1.Please type your responses in Microsoft word or some other suitable word processingsoftware.

2.Size 12 font, double space3.Your response should be limited to 2 1/2 page

Question 1: 20 points

The state of Indiana charges a retail sales tax of 7%. Consider the following information for threehouseholds:

Household Income Consumption

TaxLiability

MarginalTax Rate

AverageTax Rate

1150,00045,000280,00040,000330,00021,000

a.Calculate tax liability for each household. (3 points)

b.What is the average tax rate for each household? (3 points)

c.What is the marginal tax rate for each household? (1 point)

d.Is the sales tax progressive, regressive or proportional? Explain?

i.Be sure to define each of these terms. Response should be limited to a page:double spaced, 12 font, 1 inch margins.(4 points)

e.Retail sales taxes are used at the state and local level to finance general fund expenditures. In other words, the tax revenue collected via the sales tax is not tied directly tied to benefits received by each taxpayer. Retail sales tax fair? (9 points)

i.Please think carefully before responding to this question. I am expecting a well thought out response that covers issues related tobenefit principleversusability-to-pay principle, and vertical and horizontal equity.

Be sureto define each term.ii.Your response to part e should be no more than 1 pages long: double spaced, 12 font, 1 inch margins.

Question 2: 10 points

Indiana signed an agreement with Amazon that required to Amazon to begin collecting retail sales tax on items sold in the state as of January 1, 2014. A similar agreement was reached between Amazon and Tennessee. A number of other statesare pursuing this policy; some through agreements like Indiana and others throughformal legislation. What are the revenue implications of this tax policy?

V439: Tax Policy Analysis Spring 2016 Assignment #2 Due: 30 Points Instructions: 1. Please type your responses in Microsoft word or some other suitable word processing software. 2. Size 12 font, double space 3. Your response should be limited to 2 1/2 page Question 1: 20 points The state of Indiana charges a retail sales tax of 7%. Consider the following information for three households: Househol Consumptio Tax Marginal Average Income d n Liability Tax Rate Tax Rate 1 150,000 45,000 2 80,000 40,000 3 30,000 21,000 a. b. c. d. Calculate tax liability for each household. (3 points) What is the average tax rate for each household? (3 points) What is the marginal tax rate for each household? (1 point) Is the sales tax progressive, regressive or proportional? Explain? i. Be sure to define each of these terms. Response should be limited to a page: double spaced, 12 font, 1 inch margins. (4 points) e. Retail sales taxes are used at the state and local level to finance general fund expenditures. In other words, the tax revenue collected via the sales tax is not tied directly tied to benefits received by each taxpayer. Retail sales tax fair? (9 points) i. Please think carefully before responding to this question. I am expecting a well thought out response that covers issues related to benefit principle versus ability-to-pay principle, and vertical and horizontal equity. Be sure to define each term. ii. Your response to part e should be no more than 1 pages long: double spaced, 12 font, 1 inch margins. Question 2: 10 points Indiana signed an agreement with Amazon that required to Amazon to begin collecting retail sales tax on items sold in the state as of January 1, 2014. A similar agreement was reached between Amazon and Tennessee. A number of other states 1 are pursuing this policy; some through agreements like Indiana and others through formal legislation. What are the revenue implications of this tax policy? 2