One of the ways that has been suggested to alleviate the burden of taxation on the average citizen is lowering the income tax. Explain how this move would affect the revenue stream for federal, state, and local governments in regard to income tax revenue and sales tax revenue.

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Bruno Chandler

27 December, 03:43

One of the ways that has been suggested to alleviate the burden of taxation on the average citizen is lowering the income tax. Explain how this move would affect the revenue stream for federal, state, and local governments in regard to income tax revenue and sales tax revenue.

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Frank Bennett · Answer 1

Lowering the income tax would directly affect the tax revenue of the Federal Government, because around 50% of the federal tax revenue comes precisely from the income tax.

Lowering the income tax would not affect states directly so much, but it would affect them indirectly, because part of the Federal Revenue is used to make transfers to the states, so if the Federal Government obtains less money from income taxes, it will have less money to give to the states as well.

Lowering the sales tax, on the other hand, would affect the states directly, because it is one of the most important sources of revenue at the state level.