Question
Background: As a newly hired policy analyst in the Office of Management and Budget for TreeCity, you have been tasked with assessing a soda tax
Background: 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 Mayors 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 Mayors 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%..
A. Using the information provided in the table below calculate for each of the four families the effective tax rates of the soda tax. Please calculate the effective tax rates for both (i) before and (ii) after the policy (tax) change.
Family type | Low Income | Middle Income 1 | Middle Income 2 | High Income |
Family income | $30,000 | $75,000 | $75,000 | $145,000 |
Family size | 3 | 3 | 3 | 3 |
Projected soda purchases subject to new additional tax | $1,300 | $1,500 | $1,350 | $1,750 |
Show work here or in separate Excel file |
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Effective Tax Rate: |
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Before New Soda Tax |
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After New Soda Tax |
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