A state is facing a significant budget deficit and is considering the following new sources of revenue or cuts to spending:
1) raise the sales tax, 2) increase the marginal income tax rate for incomes over $500,000 for individuals and over $1,000,000 for families, or 3) require the state Department of Health to find ways to cut Medicaid spending by 5%.
Compare and contrast the equity and efficiency implications of these alternatives.