In what way is a sales tax similar to a flat tax?

• A. Both are designed to redistribute wealth from high-income to low-income individuals.
• B. Both apply the same tax rate to all units of the taxed item or income.
• C. Both exempt necessities such as food and medicine from taxation.
• D. Both are progressive taxes that increase with income.

Answer: (B)

Verified step by step guidance

1. Understand the definition of a sales tax: it is a tax imposed on the sale of goods and services, usually calculated as a percentage of the price paid by the consumer.
2. Understand the definition of a flat tax: it is a tax system where a single constant tax rate is applied to all levels of income or value, without exemptions or varying rates.
3. Compare the tax rates applied in both systems: a sales tax applies the same percentage rate to every unit of the taxed good or service, and a flat tax applies the same percentage rate to all income levels.
4. Recognize that both taxes do not change the rate based on the amount purchased or earned, meaning the tax rate is uniform across all units or income brackets.
5. Conclude that the similarity lies in the uniform application of the tax rate, not in their purpose (redistribution) or exemptions, nor in their progressivity.