California in the USA has the most progressive tax system. This tax structure helps to cut high poverty rates. Policymakers are thinking about changing sales tax in the state so that services are included, while relying less on direct taxes.
(a)[2]
Define the term progressive tax.
(b)[4]
Explain two reasons why a government may want to reduce poverty.
(c)[6]
Analyse, using a supply and demand diagram, the impact of an increase in sales tax.
(d)[8]
Discuss whether a government should increase indirect taxes and whether it should cut direct taxes.
Worked solution & mark scheme
This 20-mark question has a full step-by-step worked solution and mark scheme. One marking point: “A tax that takes a larger percentage of income from the rich / a smaller percentage of income from the poor” …