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    Special Tax on Automobiles

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    Suppose a special tax was introduced that used the value of one's automobile as the tax base. Each person would pay taxes equal to 10 percent of the value of his or her car. Would the tax be proportional, progressive, or regressive? What assumptions do you make in answering this question? Do you think the tax that was imposed either efficient or equitable?

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    Solution Preview

    This is a tricky because it would be progressive, proportional or regressive depending on the individual. A person who makes a lot of money might end up paying very little or nothing if they drive a very old car or have no car, while someone who is relatively poor but decides they really need a convertible BMW would be paying more. That said, we can average everyone out and assume that the richer you are, the more expensive your car. This seems like a fair assumption. This still doesn't solve the problem. ...

    Solution Summary

    Proportional, progressive, and regressive tax rates are examined. The assumptions required to answer the questions are determined. Whether the expert thinks the tax was imposed either efficient or equitable are determined.