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Taxable Income and Tax Rates: Lessons from an Economist

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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?

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

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

It demonstrates the relationship between tax rates and government revenue. (B) 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?

Supported the idea that raising top tax rates would not produce extra revenue (D) 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?

Rich individuals rushing to cash in stock options before tax increase (A) 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?

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

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

Taxable income is affected by both tax rates and individual behavior (B) 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?

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