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Economics

A state used to have a flat tax rate on individual income taxes. Recently the state implemented a progressive tax structured on individual income taxes. Predict the possible consequences of the implementation of a progressive tax structure?

Lower-income individuals are disincentivized to increase their income because their tax burden would increase. The lower-income individuals move out and are replaced with higher-income individuals and small businesses.

Only middle-income individuals are discouraged to increase their income because they would have to pay a greater percentage of their income toward the income tax. Higher-income individuals and small businesses are more likely to expand and move into the state.

Small businesses as well as middle- and high-income individuals are discouraged to increase income because the progressive scale O taxes higher percentages at higher levels of income. More high-income individuals could move out of the state, placing an increased burden on low-income individuals.

Lower-income individuals are more likely to earn more income because they have low income tax rates. This increases the amount of revenue going to the state government. The economy expands at a greater rate, and more higher-income individuals want to move into the state.​

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