A surtax of 1% is imposed on Californians earning more than $1 million per year

Question

A surtax of 1% is imposed on Californians earning more than $1 million per year to fund mental health programs This tax is an example of: In the long-run, do firms in an industry with monopolistic competition or firms in an industry with perfect competition make higher economic profits? According to the US Census Bureau, average lifetime earnings for a high school graduate are about $1.2 million compared with $2.1 million for a college graduate. The state of California provides a subsidy to help fund the cost of a college education for students, and yet the students benefit from increased earnings as a result of the education What economic argument can be made to justify the state providing a subsidy when the students arc the one who are benefiting? Give an example of how this economic argument could work.

Explanation / Answer

Correct Answer:

f. A progressive tax based on the ability to pay principle

Explanation:

“Ability to pay” principle is very unique in taxation that says that higher taxes should be applied to those with higher earning regardless of their use of the benefits. Also, in progressive tax concept, more tax is applied to those people who earn more. Accordingly, funding for mental health program is done with the surtax of 1% that is only applicable to those people of California who earn more than $1 Million. Thus, it is a case of progressive tax based on the ability to pay principle.

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