Shifting Tax Burden from Regressive to Progressive

Steps:

• Sales taxes on goods/services are regressive, disproportionately burdening low-income earners; reducing them eases this burden.
• Income taxes are progressive, taxing higher earners more; increasing them shifts the load to the wealthy.
• This reallocation makes after-tax income distribution more equal by reducing inequality.
• Higher income taxes raise marginal rates on earnings, decreasing the incentive to work.

Why C is correct:

• Progressive taxation (higher rates on income) reduces income inequality per the ability-to-pay principle, while elevated marginal tax rates lower work incentives via substitution effect in labor supply theory.

Why the others are wrong:

• A: Distribution becomes more equal, not less, due to progressive shift.
• B: Work incentive decreases from higher income taxes, not increases.
• D: Work incentive decreases, not increases, despite equality gains.

Final answer: C