1. Retailers collect the tax on behalf of the customer so the customer might not realize they are paying sales taxes. What are advantages and disadvantages from the above-mentioned feature of sales tax? Be sure to answer this from the perspective of both the retailer and customer.
2. Imagine you are a tax policy analyst for New Jersey. You asked to advise the governor on a way to reduce the regressivity of the sales tax. Would you recommend a sales tax exemption or a sales tax credit? In your response, please address the following questions:
Which option is better for tax equity?
Which option is better for tax neutrality?
Which option is better for administrative feasibility?
3. Imagine you are trying to figure out a family’s state income tax liability. Below is the following information about the family’s income situation:
The total income was $80,000
$5,000 of the total income came from a nontaxed source (i.e., a $5,000 gift from their parents)
The state allows a personal income tax exemption of $1,000 per adult and $1,500 per child. There are two adults and two children in the family.
They are homeowners and can deduct the property taxes they paid this year ($10,000)
They paid for daycare this year. Assume they qualify for a $500 tax credit.
Assuming the tax rates are the same as NJ (see slide 25 for full list of tax rates), how much do they owe in state income taxes? What is their effective tax rate? What is their marginal tax rate?
4. Calculate the state income tax liability for another family. Below is the following information about their income situation:
• Their total income was $40,000 and all of their income is taxable.
• The state allows a personal income tax exemption of $1,000 per adult and $1,500 per child. There are two adults and two children in the family.
• They are renters and the state allow renters to deduct 18% of their total annual rent. Assume they rented a rent-controlled apartment this year at $600 per month.
• They provide their own childcare at home. Therefore, they have no childcare expenses that qualify for a tax credit.
Assuming the tax rates are the same as NJ (see slide 25 for full list of tax rates), how much do they owe in state income taxes? What is their effective tax rate? What is their marginal tax rate?
Based off your calculations, evaluate the tax equity of this state’s income tax. Make an argument for why this income tax structure is fair. Additionally, make an argument for why this income tax structure is not fair.
5. Continue to work on your revenue analysis project. Specifically, start your research on:
• Describing and explaining the revenue structure of the government unit. What sources of revenue does it rely on? What comprises each source’s tax base? What are the tax rates? How similar are they compared to neighboring government units (in terms of tax base and tax rates)?
• Based off your research above, does your unit of government have a diverse set of revenue sources? What revenue sources does the unit of government lack? Should they include other revenue sources? Why or why not?
