Taxable Income and Tax Rates: Lessons from an Economist
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Questions and Answers

What did Martin Feldstein find when America cut its highest tax rate from 50% to 28% in 1986?

  • Taxable income of the rich decreased.
  • Tax revenues increased significantly.
  • Taxable income of the rich adjusted dollar-for-dollar with tax rates. (correct)
  • Taxable income of the rich remained unchanged.

What does the adjustment in taxable income driven by people altering when and how they take their income suggest?

  • Raising top tax rates is likely to produce little extra revenue. (correct)
  • Lowering tax rates leads to lower taxable income.
  • Raising top tax rates leads to higher tax revenues.
  • Lowering tax rates has no impact on taxable income.

What happened to taxable income after tax rates rose in 1993?

  • It significantly increased.
  • It decreased considerably. (correct)
  • It remained the same.
  • It fluctuated randomly.

What was the main reason for the big fall in taxable income after tax rates rose in 1993?

<p>Rich people adjusted their taxable income. (A)</p> Signup and view all the answers

How does the Laffer Curve relate to the concept discussed in the text?

<p>It demonstrates the relationship between tax rates and government revenue. (B)</p> Signup and view all the answers

What effect did Martin Feldstein's findings have on the belief that raising top tax rates would generate more revenue?

<p>Supported the idea that raising top tax rates would not produce extra revenue (D)</p> Signup and view all the answers

What was the main reason for the big fall in taxable income after tax rates rose in 1993, according to the text?

<p>Rich individuals rushing to cash in stock options before tax increase (A)</p> Signup and view all the answers

How did people respond to the tax rate cut from 50% to 28% in 1986, according to Feldstein's findings?

<p>Adjusted their taxable income downwards to avoid paying high taxes (D)</p> Signup and view all the answers

What conclusion can be drawn about the relationship between tax rates and taxable income based on the text?

<p>Taxable income is affected by both tax rates and individual behavior (B)</p> Signup and view all the answers

How does the concept of Laffer Curve relate to the behavior of taxable income after changes in tax rates?

<p>The Laffer Curve demonstrates the potential impact of tax rate changes on government revenue (D)</p> Signup and view all the answers

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