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Assume that you’re a full-time worker earning $10/hour, $80/day, $400/week, $20,000/ year. Would you be willing to quit your jobs or keep working if the tax rate was 10%? 20%? 30%? 40%? What do you think is the “best” tax rate?
What would happen if the tax rate is 0%?
2) The state of California has decided to increase funding for public education. They are considering four alternative taxes to finance these expenditures. All four taxes would raise the same amount of revenue.
a. A sales tax on food
b. A tax on families with school-age children
c. A property tax on vacation homes
d. A sales tax on jewelry
Taxes change incentives. How might individuals change their behavior because of each of these taxes? Rank these taxes from smallest deadweight loss to largest deadweight loss. Explain. Is deadweight loss the only thing to consider when designing a tax system?
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