Which of the following best explains how the decline in consumer purchases normally associated with a recession most directly affects state and local government revenue?

Question

A) The decline in consumer purchases increases the amount of profits earned by corporations, and this increases the revenue state and local governments receive from the corporate income tax.
B) A decline in consumer purchases would increase the amount of income earned by individuals, and this would increase the revenue state and local governments would receive from the individual income tax.
C) The decline in consumer purchases reduces the gross receipts of businesses and directly lowers the revenue state and local governments receive from general sales taxes.
D) The decline in consumer purchases lowers the value of real property and reduces the revenue state and local governments receive from property taxes.

Answer 1

The correct answer is:

C) The decline in consumer purchases reduces the gross receipts of businesses and directly lowers the revenue state and local governments receive from general sales taxes.

During a recession, consumer spending typically decreases, resulting in lower sales for businesses. This decline in sales directly impacts the revenue generated from sales taxes, which are crucial for state and local governments.