How much does it cost to tax a dollar of revenue away from the private sector and transfer it to the government to finance a government program?
A) one dollar
B) less than one dollar because the administration of and compliance with the tax laws creates jobs for people
C) more than a dollar because collection of the taxes requires resources that would otherwise be available for private sector production
D) more than a dollar because of the excess burden resulting from the elimination of productive exchanges by the taxes
E) Both c and d are correct.

Question

Quizplus · Accepted Answer

The cost of taxing a dollar of revenue away from the private sector is more than a dollar because it involves both the resources used in tax collection (C) and the excess burden or deadweight loss from reduced economic activity (D).

How Much Does It Cost to Tax a Dollar of Revenue