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Indexing Federal Income Tax Rates to Inflation Would Cause the Elasticity

Question 10

Multiple Choice

Indexing federal income tax rates to inflation would cause the elasticity of tax revenue with respect to GDP


A) to increase because it would allow elasticity to more accurately reflect the accelerating effect of inflation.
B) to do nothing because tax brackets would simply be enlarged with inflation and not associated with lower tax rates.
C) to do nothing because the bulk of tax revenue collected by the federal government is generated by a combination of taxes, the net effect of which is roughly proportional to GDP.
D) to diminish the elasticity of tax revenue with respect to GDP because tax revenue would no longer increase faster than nominal GDP owing to inflation.
E) none of the above.

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