new administration reforms a state’s tax code. Corporate tax was increased by 3%, allowing the value-added tax on consumer goods to be reduced by 5%. This had no net effect on the state budget as the two tax changes balanced each other out.

Question

Question
Use the passage to answer the question.

What is a likely effect of this change in tax policy?

(1 point)
Responses

High-income people will choose to leave the state.
High-income people will choose to leave the state.

Nonprofits will become a larger part of the economy.
Nonprofits will become a larger part of the economy.

Consumers in the state will choose to buy fewer things.
Consumers in the state will choose to buy fewer things.

Financial institutions will be less likely to invest in the state’s companies.

Answer 1

The most likely effect of this change in tax policy is:

Consumers in the state will choose to buy fewer things.

This is because the increase in corporate tax could lead to higher prices for consumer goods, and although the value-added tax has been reduced, the overall consumer spending may be affected by perceptions of increased costs or reduced disposable income.