Question

Tony, Juan, and Isabel live in a city where the combined state and local sales tax rate is
. They each purchased the same computer and paid $160 in sales tax.

Income
Cost of computer
Sales tax paid
Tax rate
Tony
$10,000
$2,000
$160
Juan
$50,000
$2,000
$160
Isabel
$75,000
$2,000
$160
This scenario describes a
tax system.

Isabel pays
Tony and Juan on the computer.


pays the highest tax rate on the computer.


would be the most affected by an increase in the sales tax rate.

Answer 1

- Combined sales tax rate: 8% (160 ÷ 2000 = 0.08)
- This scenario describes a regressive tax system.
- Isabel pays the same amount as Tony and Juan on the computer ($160).
- Tony pays the highest tax rate on the computer (160/10,000 = 1.6% of income).
- Tony would be the most affected by an increase in the sales tax rate (his tax on the purchase is the largest share of his income; Juan: 0.32%, Isabel: ≈0.213%).