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A city government imposes a proportional income tax on all people who earn income within its city limits. In​ 2004, the​ city's income tax rate was 0.050.05 ​(55 ​percent), and it collected ​$20.0020.00 million in income taxes. In​ 2005, it raised the income tax rate to 0.060.06 ​(66 ​percent), and its income tax collections declined to ​$19.2019.20 million. What happened to the​ city's income tax base between 2004 and​ 2005?

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Answer:

The city's income base fell by $80 million

Explanation:

If during 2004 the city was able to raise $20 million with a 5% income tax, then the city's income base was:

($20 million / 5) x 100 = $400 million

If during 2005 the city was only able to raise $19.20 million with a 6% income tax, then the city's income base lowered to:

($19.20 million / 6%) x 100 = $320 million

This means that the city's income base was reduced by $80 million (= $400 million - $320 million)

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