One of the ways that has been suggested to alleviate the burden of taxation on the average citizen is lowering the income tax. Explain how this move would affect the revenue stream for federal, state, and local governments in regard to income tax revenue and sales tax revenue.

Answer:

Cutting taxes reduces government revenues,at lease in the short term, and creates either a budget deficit or increased sovereign debt. The natural countermeasure would be to cut spending.

or...

Lowering the income tax would definitely help raise funds for local governments without hurting any other revenue stream because local governments don’t collect income taxes. With lower income taxes, there is more money for each family to spend and more opportunities for local governments to collect sales tax. State Government: Revenue is gained and lost in for state governments. Money is lost if the income tax is reduced, because the states do collect income taxes. However, states also collect the bulk of the sales tax, and the more money that consumers get to keep, the more money they’ll spend buying products that can be taxed. Federal Government: This move would be bad for the federal government’s revenue stream. Lowering the income tax means less revenue coming into the federal government, and the federal government does not collect sales taxes.

Explanation:

Tax cuts lower government income in the short term, resulting in either a budget deficit or a rise in national debt. Budget cuts would be a reasonable countermeasure.

Governor's Office: For state governments, revenue is acquired and lost. Because revenue taxes are collected by the states, money is lost if the tax rate is cut.

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