Basic Economics

Question

How could decreasing the sales taxes percentages from 6% to 5.5% in Fl actually increase the total dollar amount of sales taxes generated in the states?

Answer 1

The sales tax is a percentage of total sales.  If sales are say $10,000,000 in the state, the sales tax will be ($10,000,000)*(0.06) = $600,000.  Lowering the tax to 5.5% is like giving consumers a discount on everything they buy.  Hence lowering the sales tax may cause consumers to buy more, raising the total sales revenue to $11,000,000 for example.  The sales tax on  $11,000,000 at 5.5% is ($11,000,000)*(0.055) = $605,000 which is greater than the $600,000 raised when the sales tax was 6%.