A new administration reforms a state's tax code. The corporate tax was increased by 3%, allowing the value-added tax on consumer goods to be reduced by 5%. This had no net effect on the state budget as the two tax changes balanced each other out. What is a likely effect of this change?
A. High-income people will choose to leave the state.
B. Nonprofits will become a larger part of the economy.
C. Consumers in the state will choose to buy fewer things.
D. Financial institutions will be less likely to invest in the state's companies.
C. Consumers in the state will choose to buy fewer things.
When the value-added tax on consumer goods is reduced, it can make goods cheaper for consumers. This can lead to an increase in consumer spending as people are more incentivized to purchase goods. However, if the corporate tax is increased simultaneously, it can result in companies raising the prices of their goods and services to offset the higher tax burden. As a result, consumers may choose to buy fewer things due to the increased prices, which can have a dampening effect on the economy.