Discuss local, state, federal taxation of a good Essay

Discuss local, state, federal revenue enhancement of a profound - examine ExampleThis has produced a corresponding decline in the effectiveness of the tax as a revenue enhancement raiser, because the demand for goods has declined. Demand for services has risen, besides services have been excluded from the base of taxable items, hence it does not contribute to state revenue. The shift in consumer demand from goods to services may be due to the taxation of goods as opposed to non taxation of services.But Tannenwald (2002) notes that cyclical influences can also shape demand, which may tierce to an increase in State revenues. The explanation offered for this phenomenon is that tax consumption is more pro-cyclical than tax preferred consumption. When saki rates are low and the stock market is strong, consumers tend to spend freely on taxed items, which results in a boost to the economy and contributes a greater share of funds to State revenues. But as consumers continue to spend m ore on taxed goods, the level of savings also goes down because consumer debt keeps increasing. As consumer debt rises to a high level, there is a shift in consumer demand from taxed goods to untaxed services, which results in a condensation of the economy and a decline in the revenues earned by the State.(Tannenwald, 2002).With an increase in outsourcing and the production of goods at cheaper locations, consumers may still prefer to spend on taxed items because the goods overall have become cheaper, so that in spite of the tax the goods may still be priced at competitive rates (Tannenwald, 2002). Taxes play an important image in the final price of the product, since a higher tax on a particular good will make it less attractive for consumers to purchase, since the price of the good in the marketplace will be higher. In such a case, when the economy is strong, there may be adequate sales of taxed goods but when consumer debt rises and the tax remains high, the shift in consumer d emand to services will result in a fall in