19.6 Business and Policy Application: City Wage Taxes: In the United States, very few cities tax income derived from wages, whereas the national government imposes considerable taxes on wages (through both payroll and income taxes) and then passes some of those revenues back to city governments.

A. In this exercise, we will consider the reason for this difference in local and national tax policy and why city governments might in fact be “employing” the national government to levy wage taxes and then have the national government return them to cities.