Question

Assume the property tax rate in a town is 1% which is applied to the assessed value of a house. The revenue from the property tax is used to pay for public school education in the town. The table shows different levels of household income and the average house price for each level of household income.                                                                                                                                                                                           (10 points)

Household Income, $ Assessed Home Value

40,000                           100,000

60,000                        120,000

80,000                           150,000

100,000                      170,000

120,000                           190,000

a. Explain the difference between the benefits principle and the ability to pay principle of taxation.

b. Calculate the marginal and average tax rates for these different levels of household income.

c. Using the information provided, explain whether the property tax in this town is a proportional, progressive or regressive tax.

d. Explain whether this property tax is based on either the benefits principle or the ability to pay principle.

Answer 1

a)the benefit principle bases taxes to pay for public goods expenditures on a politically -revealed willingness to pay for public goods expenditures on a politically revealed willingness to pay for benefits received.ability to pay principle rests on the idea that the tax burden should be geared directly to one's income and wealth.d)property tax is levied on the value of a property and it is related to ability to pay principle because property tax will create a burden of taxation relative to wealth of individuals c) propotionaltax is a tax that takes the same percentage of income from all grops.for property tax,it does not really matter what income group you are in because the tax is imposed on the property itself.so proprety tax is a propotional tax