Essay 18 KEY / SOROKO / Spring 2016
1. In what ways have federal, state, and
local government spending and revenue
changed in the last 50 years? (30 points)
Federal government taxation and
spending was independent and separate
from that of state and local government.
However, within the last 50 years, the
states have begun to turn to the federal
government for assistance; local
governments have also started to turn to
their state governments for help.
Essay 18 KEY / SOROKO / Spring 2016
2. In what ways is the benefits-received
principle of taxation good for some taxes
and not for others? (30 points) The
benefits-received principle applies
directly when a person who uses a
product or service a lot also gets good
benefit from it. For example, someone
who uses a lot of gasoline pays more for
gasoline and receives more benefits from
highway travel. Consider this, compared
to a person who drives an electric car.
Pays no gas tax but drives on the roads
tax-free! Some people, however, may
pay taxes and receive indirect benefit
from it. For example, people who have
children in school benefit directly from
the cost of public education; those
without children in school receive an
indirect benefit because society is better
off when citizens are educated.
Essay 18 KEY / SOROKO / Spring 2016
3. Why is the effect of a tax one of the
most controversial issues in the United
States? (20 points) Taxes do not affect
people equally. The income tax system is
structured so that people with higher
incomes pay higher taxes. Many people,
however, argue for “tax relief” so that
people and businesses with high incomes
can reinvest money in the economy
rather than pay it to the government.
Many people also argue that they should
be able to keep more of the money they
earn rather than have to pay high taxes.
Essay 18 KEY / SOROKO / Spring 2016
4. Name, describe, compare and contrast
the three types of ability-to-pay income
taxes? (40 points) Proportional,
progressive and regressive taxes are all
direct taxes (5). Proportional requires
each taxpayer to pay the same
percentage. Progressive taxes take a
higher percentage of income from the
person who has a higher income than
from a person from a lower income.
Regressive taxes take a larger
percentage of tax from the earnings of a
person with a lower income than from a
person with a higher income. They differ
in fairness in relation to the ability to
pay principle (5).
Essay 18 KEY / SOROKO / Spring 2016
5. Define, compare and contrast a direct
tax to an indirect tax. (20 points) Both
taxes are similar in the economic effect
of taxations, specifically for the delivery
of goods and services, related to the
“Circular Flow of a Mixed Economy.”
In a direct tax, the taxpayer has no
choice but to pay the tax, which is taken
(directly) from their paycheck. The
revenue is used at the federal and
state/local level. An indirect tax is part
of the price a consumer pays for either
goods or services. It is used at the state
and local level.