Question

Many local governments rely on sales taxes for much of their revenue. When they have budget shortages, why do they not simply raise rates as needed?

Answer 1

Many local governments rely on sales taxes for much of their revenue. A sale tax is a type of tax that a seller, a business, has to paid to a governing institution for the sales of goods and services. The sellers typically collects the money for the sale tax by including it in the price of the good or service that they offer. When governments have budget shortages, they always try to look for an alternative solution rather than increasing the sale tax value. This is because an increase of the tax would affect negatively the businesses of the community. Taxes are already one of the factors that take the most amount of funds that a business has. If the sale tax increases, it may be too much for the sellers, that they would need to increase the price of the good or service they provide, or that they would have to decrease the amount of employees they have, so that they would save money by having less employees. All of these scenarios would likely affect the earnings of the business, which would also affect the economy of the community in the long run.

Answer 2

Higher rates could drive businesses to other counties.