ECON202 – The City of Philadelphia still heavily taxes

Subject: Economics    / General Economics
Question
The City of Philadelphia still heavily taxes income at the city-level (even though Phillyresidents also pay state and federal income taxes of course). One of the proposals aroundby one of the mayoral candidates is to lower the city tax rate. Opponents argue that thispolicy would make the city’s fiscal deficit even worse. People in favor argue that anincrease in deficits is not necessarily a consequence of lower tax rates.
a) Which group is right? Explain. (7 points)
b) What would be a benefit of lower taxes? (3 points)