In the mid-1940s, the marginal income tax rate in the top income tax bracket was 94 percent. In the 1960s, the top rate was lowered to 70 percent, and in the 1980s, the top rate was again lowered to 28 percent. The data show that as a result of these tax rate reductions, tax revenue (particularly from the rich) increased. This is consistent with the idea illustrated with the
A) Laffer curve.
B) production possibilities curve.
C) supply of loanable funds curve.
D) demand for unskilled labor curve.

Question

Quizplus · Accepted Answer

The Laffer curve illustrates the relationship between tax rates and tax revenue. According to the Laffer curve, if tax rates are too high, reducing them can actually increase tax revenue by incentivizing economic activity and reducing tax evasion. The data provided in the question supports this idea, as tax revenue increased after the top income tax rate was lowered.

In the Mid-1940s, the Marginal Income Tax Rate in the Top