Al Believes That SUVs Have Negative Social and Environmental Effects

question 127

Multiple Choice

Al believes that SUVs have negative social and environmental effects because of their increased carbon monoxide emissions. He proposes eliminating sales taxes on smaller automobiles in favor of higher sales taxes levied on SUVs. Al performs some calculations and comes to the conclusion that based on the current number of SUVs owned in the U.S., exactly the same amount of total sales tax will be collected under his reformed system. Which of the following concepts explains why Al's idea may not work?

• A)The ability to pay principle
• B)Horizontal equity
• C)Substitution effect
• D)Vertical equity
• E)None of the choices are correct

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Definitions:

Regressive Tax

A taxation system where the tax rate decreases as the taxable amount increases, leading to a higher tax burden on lower-income individuals relative to higher-income individuals.

Progressive Tax

A tax system where the tax rate increases as the taxable amount or income increases, placing a larger burden on those who have the ability to pay more.

Federal Income Tax

A charge imposed by the US federal government on the yearly income of persons, companies, trusts, and various legal bodies.

Excise Tax

A tax on the sale or consumption of a specific product or service, often levied at the point of manufacture or sale.